Irreversible investment, uncertainty, and ambiguity: The case of bioenergy sector
AbstractWe analyze production and investment decisions of an agent in industrial activities that are characterized by two forms of uncertainty: demand uncertainty (in terms of number of buyers) and competitive effect uncertainty (in terms of other energy resource). We apply our model on the bioenergy industries. We compare the case of an ambiguity neutral agent with that of an ambiguity averse agent. We show that the investment decision of an agent depends on the effects of both the capital investment and the level of production on the cost and the uncertainty the agent is confronted with. Moreover, we find that ambiguity aversion tends to decrease the agent's optimal levels of production and investment. Our numerical analysis of the French case illustrates the different effects associated with demand uncertainty and competitive effect uncertainty.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Energy Economics.
Volume (Year): 34 (2012)
Issue (Month): 1 ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/eneco
Ambiguity; Bioenergy; Irreversible investment; Uncertainty;
Other versions of this item:
- Pierre-André Jouvet & Elodie Lecadre & Caroline Orset, 2011. "Irreversible investment, uncertainty, and ambiguity: the case of bioenergy sector," Working Papers 2011/01, INRA, Economie Publique.
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
- Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- McDonald, Robert & Siegel, Daniel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 707-27, November.
- Sujoy Mukerji & Peter Klibanoff, 2002.
"A Smooth Model of Decision,Making Under Ambiguity,"
Economics Series Working Papers
113, University of Oxford, Department of Economics.
- Henry, Claude, 1974. "Investment Decisions Under Uncertainty: The "Irreversibility Effect."," American Economic Review, American Economic Association, vol. 64(6), pages 1006-12, December.
- Nalin Kulatilaka & Enrico C. Perotti, 1998. "Strategic Growth Options," Management Science, INFORMS, vol. 44(8), pages 1021-1031, August.
- Kumbaroglu, Gürkan & Madlener, Reinhard & Demirel, Mustafa, 2008.
"A real options evaluation model for the diffusion prospects of new renewable power generation technologies,"
Elsevier, vol. 30(4), pages 1882-1908, July.
- Gürkan Kumbaroglu & Reinhard Madlener & Mustafa Demirel, 2004. "A Real Options Evaluation Model for the Diffusion Prospects of New Renewable Power Generation Technologies," CEPE Working paper series 04-35, CEPE Center for Energy Policy and Economics, ETH Zurich.
- Christian Gollier, 2007. "Comment intégrer le risque dans le calcul économique ?," Revue d'économie politique, Dalloz, vol. 0(2), pages 209-223.
- Engle Warnick James C. & Escobal Javier & Laszlo Sonia C., 2011. "Ambiguity Aversion and Portfolio Choice in Small-Scale Peruvian Farming," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-56, November.
- Mario J. Miranda & Paul L. Fackler, 2004. "Applied Computational Economics and Finance," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633094, January.
- John Elder & Apostolos Serletis, 2010.
"Oil Price Uncertainty,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 42(6), pages 1137-1159, 09.
- Tom Doan, . "RATS programs to estimate structural VAR-GARCH-M model," Statistical Software Components RTZ00052, Boston College Department of Economics.
- Isik, Murat & Coble, Keith H. & Hudson, Darren & House, Lisa, 2002.
"A Model Of Entry-Exit Decisions And Capacity Choice Under Demand Uncertainty,"
2002 Annual meeting, July 28-31, Long Beach, CA
19797, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
- Isik, Murat & Coble, Keith H. & Hudson, Darren & House, Lisa O., 2003. "A model of entry-exit decisions and capacity choice under demand uncertainty," Agricultural Economics, Blackwell, vol. 28(3), pages 215-224, May.
- Elder, John & Serletis, Apostolos, 2009. "Oil price uncertainty in Canada," Energy Economics, Elsevier, vol. 31(6), pages 852-856, November.
- Carruth, Alan & Dickerson, Andrew & Henley, Andrew, 2000.
" What Do We Know about Investment under Uncertainty?,"
Journal of Economic Surveys,
Wiley Blackwell, vol. 14(2), pages 119-53, April.
- Alan Carruth & Andy Dickerson & Andrew Henley, 1998. "What Do We Know About Investment Under Uncertainty?," Studies in Economics 9804, Department of Economics, University of Kent.
- Fan, Ying & Zhu, Lei, 2010. "A real options based model and its application to China's overseas oil investment decisions," Energy Economics, Elsevier, vol. 32(3), pages 627-637, May.
- Johanna Etner & Meglena Jeleva & Jean-Marc Tallon, 2009.
"Decision theory under uncertainty,"
Documents de travail du Centre d'Economie de la Sorbonne
09064, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne, revised Nov 2009.
- Johanna Etner & Meglena Jeleva & Jean-Marc Tallon, 2009. "Decision theory under uncertainty," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) halshs-00429573, HAL.
- Mohn, Klaus & Misund, Bård, 2009. "Investment and uncertainty in the international oil and gas industry," Energy Economics, Elsevier, vol. 31(2), pages 240-248, March.
- Sarkar, Sudipto, 2000. "On the investment-uncertainty relationship in a real options model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(2), pages 219-225, February.
- Schmit, Todd M. & Luo, Jianchuan & Tauer, Loren W., 2008. "Ethanol Plant Investment using Net Present Value and Real Options Analyses," Working Papers 51145, Cornell University, Department of Applied Economics and Management.
- Murto, Pauli & Nasakkala, Erkka & Keppo, Jussi, 2004. "Timing of investments in oligopoly under uncertainty: A framework for numerical analysis," European Journal of Operational Research, Elsevier, vol. 157(2), pages 486-500, September.
- Dangl, Thomas, 1999. "Investment and capacity choice under uncertain demand," European Journal of Operational Research, Elsevier, vol. 117(3), pages 415-428, September.
- Heath, Chip & Tversky, Amos, 1991. " Preference and Belief: Ambiguity and Competence in Choice under Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 4(1), pages 5-28, January.
- Yi, Fujin & Lin, C.-Y. Cynthia & Thome, Karen, 2013. "An Analysis of the Effects of Government Subsidies and the Renewable Fuels Standard on the Fuel Ethanol Industry: A Structural Econometric Model," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150224, Agricultural and Applied Economics Association.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.