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
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 Springer in its journal Economic Theory.
Volume (Year): 22 (2003)
Issue (Month): 3 (October)
Contact details of provider:
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
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.:
- Shorrocks, Anthony F, 1983. "Ranking Income Distributions," Economica, London School of Economics and Political Science, vol. 50(197), pages 3-17, February.
- Bohren, Oyvind & Hansen, Terje, 1980. " Capital Budgeting with Unspecified Discount Rates," Scandinavian Journal of Economics, Wiley Blackwell, vol. 82(1), pages 45-58.
- Pratt, John W & Hammond, John S, III, 1979. "Evaluating and Comparing Projects: Simple Detection of False Alarms," Journal of Finance, American Finance Association, vol. 34(5), pages 1231-42, December.
- Sen, Amartya, 1975. "Minimal conditions for monotonicity of capital value," Journal of Economic Theory, Elsevier, vol. 11(3), pages 340-355, December.
- Foster, James E & Shorrocks, Anthony F, 1988. "Poverty Orderings," Econometrica, Econometric Society, vol. 56(1), pages 173-77, January.
- J. Hirshleifer, 1958. "On the Theory of Optimal Investment Decision," Journal of Political Economy, University of Chicago Press, vol. 66, pages 329.
- Steinar Ekern., 1980.
"Time Dominance Efficiency Analysis,"
Research Program in Finance Working Papers
105, University of California at Berkeley.
- Bawa, Vijay S., 1975. "Optimal rules for ordering uncertain prospects," Journal of Financial Economics, Elsevier, vol. 2(1), pages 95-121, March.
- Murat Sertel & Arkadii Slinko, 2007.
"Ranking Committees, Income Streams or Multisets,"
Springer, vol. 30(2), pages 289-289, February.
- John Quah & Bruno Strulovici, 2011. "Discounting, Patience, and Dynamic Decision Making," Economics Series Working Papers 555, University of Oxford, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F Baum).
If references are entirely missing, you can add them using this form.