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Irreversible investment, uncertainty, and ambiguity: the case of bioenergy sector

Pierre-André Jouvet, Elodie Le Cadre () and Caroline Orset ()
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Elodie Le Cadre: UMR INRA-AgroParisTech Economie Publique - EconomiX, Université Paris Ouest Nanterre La Défense
Caroline Orset: UMR INRA-AgroParisTech Economie Publique

Working Papers from Chaire Economie du climat

Abstract: We analyse the decision of an agent to invest and engage in industrial activities that are characterized by two forms of uncertainty: market size uncertainty and competitive effect uncertainty. We apply our model on the bioenergy industries. We compare the case of an ambiguity neutral agent with that of an ambiguity adverse agent. We show that the investment decision of an agent depends on the effects of both the capital investment and the level of production on the cost and the uncertainty the agent is confronted with. Moreover, we find that ambiguity aversion tends to decrease the agent's optimal levels of production and investment. Our numerical analysis of the French case illustrates the different effects associated with market size uncertainty and competitive effect uncertainty.

Keywords: Ambiguity; Bioenergy; Irreversible investment; Uncertainty (search for similar items in EconPapers)
JEL-codes: D21 D81 Q23 Q42 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2011-04
New Economics Papers: this item is included in nep-bec
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Citations: View citations in EconPapers (1)

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http://www.chaireeconomieduclimat.org/RePEc/cec/wp ... et_LeCadre_Orset.pdf First version, 2011 (application/pdf)

Related works:
Journal Article: Irreversible investment, uncertainty, and ambiguity: The case of bioenergy sector (2012) Downloads
Working Paper: Irreversible investment, uncertainty, and ambiguity: The case of bioenergy sector (2012) Downloads
Working Paper: Irreversible investment, uncertainty, and ambiguity: the case of bioenergy sector (2011) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:cec:wpaper:1104

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