Mutually exclusive investment with technical uncertainty

Jyh-Bang Jou and Tan (Charlene) Lee

Applied Economics, 2011, vol. 43, issue 30, 4723-4728

Abstract: A firm, which faces technical uncertainty as in Pindyck (1993) can choose between two mutually exclusive investment projects, Projects 1 and 2. The added option to exercise Project 2 makes the firm less likely to exercise Project 1. An increase in the degree of technical uncertainty, the investment rate or the investment value upon completion for Project 2 encourages the firm to exercise Project 2 by increasing the trigger level of the expected cost of Project 2. This, however, ambiguously affects the firm's incentive to exercise Project 1, as the firm would rather implement Project 1 (2) in a region where the expected cost of Project 2 is relatively high (low).

Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/00036846.2010.498351 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:43:y:2011:i:30:p:4723-4728

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036846.2010.498351

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().