Ranking investment projects
AbstractThis paper describes conditions under which one investment project dominates a second project in terms of net present value, irrespective of the choice of the discount rate. The resulting partial ordering of projects has certain similarities to stochastic dominance. However, the structure of the net present value function leads to characterizations that are quite specific to this context. Our theorems use Bernstein's (1915) innovative results on the representation and approximation of polynomials, as well as other general results from the theory of equations, to characterize the partial ordering. We also show how the ranking is altered when the range of discount rates is limited or the rate varies period by period. Copyright Springer-Verlag Berlin Heidelberg 2003
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Bibliographic InfoArticle provided by Springer in its journal Economic Theory.
Volume (Year): 22 (2003)
Issue (Month): 3 (October)
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Web page: http://link.springer.de/link/service/journals/00199/index.htm
Other versions of this item:
- Foster, James E. & Mitra, Tapan, 2001. "Ranking Investment Projects," Working Papers 01-06, Cornell University, Center for Analytic Economics.
- James E. Foster & Tapan Mitra, 2001. "Ranking Investment Projects," Vanderbilt University Department of Economics Working Papers 0107, Vanderbilt University Department of Economics.
- D92 - Microeconomics - - Intertemporal Choice - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
- O22 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Project Analysis
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