Environmental Impact Assessment and Investment under Uncertainty. An Application to Power Grid Interconnection

Jean-Daniel Saphores, Éric Gravel and Jean-Thomas Bernard ()

Cahiers de recherche from Université Laval - Département d'économique

Abstract:

We consider a firm that must undergo a costly and time-consuming regulatory process before making an irreversible, lagged investment whose value varies randomly. We analyze two cases: regulatory approval is valid forever or it expires after some time. We apply our model to Hydro-Québec's project of building a 1250 megawatts interconnection with Ontario. We find that the firm may start the regulatory process earlier if regulatory approval is valid long enough or if uncertainty is high enough; it postpones it otherwise. When to start the regulatory process and when to invest depend on the duration of the regulatory green light.

Keywords: Regulation; uncertainty; irreversibility; real options; interconnections (search for similar items in EconPapers)
JEL-codes: D81 L51 (search for similar items in EconPapers)
Date: 2003
New Economics Papers: this item is included in nep-com and nep-res
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.ecn.ulaval.ca/w3/recherche/cahiers/2003/0303.pdf (application/pdf)

Related works:
Working Paper: Environmental Impact Assessment and Investment under Uncertainty: An Application to Power Grid Interconnection (2003)
Working Paper: Environmental Impact Assessment and Investment under Uncertainty. An Application to Power Grid Interconnection (2003)
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:lvl:laeccr:0303

Access Statistics for this paper

More papers in Cahiers de recherche from Université Laval - Département d'économique Contact information at EDIRC.
Bibliographic data for series maintained by Manuel Paradis ().