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Implementation lag and the investment decision

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  • Sarkar, Sudipto
  • Zhang, Chuanqian

Abstract

The effect of implementation lag on investment trigger depends on project reversibility and growth rate. Conventional results (that longer lag and greater uncertainty raise investment trigger) are overturned if the project is sufficiently reversible and/or has a high enough growth rate.

Suggested Citation

  • Sarkar, Sudipto & Zhang, Chuanqian, 2013. "Implementation lag and the investment decision," Economics Letters, Elsevier, vol. 119(2), pages 136-140.
    • Handle: RePEc:eee:ecolet:v:119:y:2013:i:2:p:136-140
    DOI: 10.1016/j.econlet.2013.02.018
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    References listed on IDEAS

    as
    1. Alvarez, Luis H. R. & Keppo, Jussi, 2002. "The impact of delivery lags on irreversible investment under uncertainty," European Journal of Operational Research, Elsevier, vol. 136(1), pages 173-180, January.
    2. Majd, Saman & Pindyck, Robert S., 1987. "Time to build, option value, and investment decisions," Journal of Financial Economics, Elsevier, vol. 18(1), pages 7-27, March.
    3. Bar-Ilan, Avner & Strange, William C, 1996. "Investment Lags," American Economic Review, American Economic Association, vol. 86(3), pages 610-622, June.
    4. Felipe L. Aguerrevere, 2003. "Equilibrium Investment Strategies and Output Price Behavior: A Real-Options Approach," The Review of Financial Studies, Society for Financial Studies, vol. 16(4), pages 1239-1272.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Sarkar, Sudipto & Zhang, Chuanqian, 2015. "Investment policy with time-to-build," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 142-156.
    2. Thijssen, Jacco J.J., 2022. "Optimal investment and abandonment decisions for projects with construction uncertainty," European Journal of Operational Research, Elsevier, vol. 298(1), pages 368-379.
    3. Wacker, Konstantin M., 2013. "On the measurement of foreign direct investment and its relationship to activities of multinational corporations," Working Paper Series 1614, European Central Bank.
    4. Armerin, Fredrik & Song, Han-Suck, 2020. "A framework for modelling cash flow lags," Working Paper Series 20/17, Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance.
    5. Leon A. Petrosyan & David W.K. Yeung, 2020. "Cooperative Dynamic Games with Durable Controls: Theory and Application," Dynamic Games and Applications, Springer, vol. 10(4), pages 872-896, December.
    6. Thijssen, Jacco J.J., 2015. "A model for irreversible investment with construction and revenue uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 57(C), pages 250-266.
    7. Fredrik Armerin & Han-Suck Song, 2021. "A framework for modelling cash flow lags," SN Business & Economics, Springer, vol. 1(10), pages 1-13, October.
    8. Delaney, Laura, 2022. "The impact of operational delay on irreversible investment under Knightian uncertainty," Economics Letters, Elsevier, vol. 215(C).

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    More about this item

    Keywords

    Investment trigger; Real option; Investment lag; Reversibility;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance

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