Regime uncertainty and optimal investment timing
AbstractWe construct a real options model in which a regime change is expected at a pre-determined future time and study the effects of regime uncertainty on a firm's strategic investment decision, taking into consideration the remaining time to the regime change and the probability of each regime state. We show that just before the time of a regime change, firms should act as if the worst-case scenario was about to happen, even if a good state is highly possible.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Dynamics and Control.
Volume (Year): 33 (2009)
Issue (Month): 10 (October)
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Web page: http://www.elsevier.com/locate/jedc
Investment timing Real options Policy change Regime uncertainty;
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