Title
Capacity choice in (strategic) real options models : a surveyCapacity choice in (strategic) real options models : a survey
Author
Faculty/Department
Faculty of Applied Economics
Research group
Economics
Publication type
article
Publication
Subject
Mathematics
Source (journal)
Dynamic Games and Applications
Volume/pages
5(2015):4, p. 424-439
ISSN
2153-0785
ISI
000365755200002
Carrier
E
Target language
English (eng)
Full text (Publishers DOI)
Affiliation
University of Antwerp
Abstract
The theory of real options determines the optimal time to invest in a project of given size. As a main result, it is found that in a more uncertain environment, it is optimal for a firm to delay its investment. In other words, uncertainty generates a "value of waiting." Recently, contributions appeared that in addition determine the optimal size of the investment. This paper surveys this literature. As a general result, it is obtained that more uncertainty results in larger investments taking place at a later point in time. So, where from the traditional real options literature one can conclude that uncertainty is bad for growth, this is not so clear anymore when also the size of the investment needs to be determined. The survey consists of two parts. First, we present single firm models, and second, we give an overview of the oligopoly models that have appeared up until now.
E-info
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Full text (open access)
https://repository.uantwerpen.be/docman/irua/00b23a/130234.pdf
Handle