This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Valuation of Irreversible Entry Options under Uncertainty and Taxation

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Luis H. R. Alvarez ()
Vesa Kanniainen ()

Additional information is available for the following registered author(s):

Abstract

We analyze the tax effects on a potential firm with an irreversible entry option and subject to risky post-entry earnings. We formulate the problem in terms of optimal stopping and derive both the necessary conditions for optimal entry and the value of the optimal premium by relying on the classical theory of diffusions and the Greenian representation of the stochastic value functional. We show that to make the entry option invariant with respect to the tax policy when the government owns a call option on a fraction of firm's earnings, the tax allowance has to satisfy a first-order non-linear differential equation. We derive qualitive results for the neutrality of the tax policy. Using standard geometric Brownian motion to model price uncertainty, we provide examples of the requirements for tax invariance. The Johansson-Samuelson theorem is re-examined.

Download Info
To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Publisher Info
Paper provided by CESifo GmbH in its series CESifo Working Paper Series with number CESifo Working Paper No. 144.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length:
Date of creation: 1997
Date of revision:
Handle: RePEc:ces:ceswps:_144

Contact details of provider:
Postal: Poschingerstrasse 5, 81679 Munich
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Web page: http://www.cesifo.de

For technical questions regarding this item, or to correct its listing, contact: (Julio Saavedra).

Related research
Keywords: Optimal entry premium tax policy Johansson-Samuelson theorem regular diffusion process Green-kernel optimal stopping

Other versions of this item:

Find related papers by JEL classification:
C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

Cited by:
(explanations, 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.)

  1. Niemann, Rainer & Sureth, Caren, 2002. "Taxation under Uncertainty -- Problems of Dynamic Programming and Contingent Claims Analysis in Real Option Theory," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  2. Paolo Panteghini, 2002. "Asymmetric Taxation under Incremental and Sequential Investment," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
  3. Panteghini, Paolo, 2000. "On Corporate Tax Asymmetries and Neutrality," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
  4. Alvarez JR, Luis & Kanniainen, Vesa & Södersten, Jan, 2000. "Why is the Corporation Tax Not Neutral? Anticipated Tax Reform, Investment Spurts and Corporate Borrowing," Working Paper Series 2000:4, Uppsala University, Department of Economics. [Downloadable!]
    Other versions:
  5. Boehm, Hjalmar & Funke, Michael, 2000. "Optimal Investment Strategies under Demand and Tax Policy Uncertainty," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
  6. Vesa Kanniainen & Paolo M. Panteghini, 2008. "Tax Neutrality: Illusion or Reality? The Case of Entrepreneurship," Working Papers 0803, University of Brescia, Department of Economics. [Downloadable!]
    Other versions:
  7. Sinn, Hans-Werner, 1999. "Inflation and Welfare: Comment on Robert Lucas," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
Statistics
Access and download statistics

Did you know? RePEc stands for Research Papers in Economics.

This page was last updated on 2008-9-22.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.