Publication
Title
Uncertainty and stepwise investment
Author
Abstract
We analyze the optimal investment strategy of a firm that can complete a project either in one stage at a single freely chosen time point or in incremental steps at distinct time points. The presence of economies of scale gives rise to the following trade-off: lumpy investment has a lower total cost, but stepwise investment gives more flexibility by letting the firm choose the timing individually for each stage. Our main question is how uncertainty in market development affects this trade-off. The answer is unambiguous and in contrast with a conventional real-options intuition: higher uncertainty makes the single-stage investment more attractive relative to the more flexible stepwise investment strategy.
Language
English
Source (journal)
European journal of operational research. - Amsterdam
European journal of operational research
Publication
Amsterdam : 2010
ISSN
0377-2217
Volume/pages
202:1(2010), p. 196-203
ISI
000271700800023
Full text (Publisher's DOI)
Full text (publisher's version - intranet only)
UAntwerpen
Faculty/Department
Research group
Publication type
Subject
Affiliation
Publications with a UAntwerp address
External links
Web of Science
Record
Identification
Creation 19.01.2010
Last edited 03.08.2017
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