Irreversible investment, uncertainty, and ambiguity: the case of bioenergy sector
AbstractWe analyse the decision of an agent to invest and engage in industrial activities that are characterized by two forms of uncertainty: market size uncertainty and competitive effect uncertainty. 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 market size uncertainty and competitive effect uncertainty.
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Bibliographic InfoPaper provided by INRA, Economie Publique in its series Working Papers with number 2011/01.
Date of creation: 31 Jan 2011
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Ambiguity; Bioenergy; Irreversible investment; Uncertainty;
Other versions of this item:
- Jouvet, Pierre-André & Le Cadre, Elodie & Orset, Caroline, 2012. "Irreversible investment, uncertainty, and ambiguity: The case of bioenergy sector," Energy Economics, Elsevier, vol. 34(1), pages 45-53.
- 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
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