Commitment as investment under uncertainty
AbstractIrreversible investment and the techniques associated with pricing real options have led to significant advances many areas. We broaden this range of applications, showing how the techniques can apply to many policy problems in finance, macroeconomics, and trade policy. With small changes, standard techniques can handle a broad range of strategic problems related to policy. The decision to commit is like the decision to make an irreversible investment. Explicitly considering and correctly valuing the option to wait makes discretion relatively more attractive, implies that increased uncertainty increases the gain to discretion, and results in policy which displays hysteresis.
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.
Bibliographic InfoPaper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 1995-004.
Date of creation: 1996
Date of revision:
Other versions of this item:
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.:
- Pindyck, Robert S, 1991.
"Irreversibility, Uncertainty, and Investment,"
Journal of Economic Literature,
American Economic Association, vol. 29(3), pages 1110-48, September.
- Robert S. Pindyck, 1990. "Irreversibility, Uncertainty, and Investment," NBER Working Papers 3307, National Bureau of Economic Research, Inc.
- Pindyck, Robert, 1989. "Irreversibility, uncertainty, and investment," Policy Research Working Paper Series 294, The World Bank.
- Pindyck, Robert S., 1990. "Irreversibility, uncertainty, and investment," Working papers 3137-90., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Dixit, A., 1988.
"Entry And Exit Decisions Under Uncertainty,"
91, Princeton, Department of Economics - Financial Research Center.
- Lambson, Val Eugene, 1992. "Competitive Profits in the Long Run," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 125-42, January.
- Joseph G. Haubrich & Joseph A. Ritter, 1996.
"Dynamic commitment and imperfect policy rules,"
9601, Federal Reserve Bank of Cleveland.
- 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.
- George J. Mailath & Loretta J. Mester, 1993.
"A positive analysis of bank closure,"
93-10/R, Federal Reserve Bank of Philadelphia.
- Flood, Robert P & Garber, Peter M, 1984.
"Gold Monetization and Gold Discipline,"
Journal of Political Economy,
University of Chicago Press, vol. 92(1), pages 90-107, February.
- Robert P. Flood & Peter M. Garber, 1981. "Gold monetization and gold discipline," International Finance Discussion Papers 190, Board of Governors of the Federal Reserve System (U.S.).
- Robert P. Flood & Peter M. Garber, 1980. "Gold Monetization and Gold Discipline," NBER Working Papers 0544, National Bureau of Economic Research, Inc.
- John Y. Campbell, 1995.
"Some Lessons from the Yield Curve,"
Harvard Institute of Economic Research Working Papers
1713, Harvard - Institute of Economic Research.
- Robert P. Flood & Peter Isard, 1989. "Monetary Policy Strategies," IMF Staff Papers, Palgrave Macmillan, vol. 36(3), pages 612-632, September.
- Barro, Robert J & Gordon, David B, 1983.
"A Positive Theory of Monetary Policy in a Natural Rate Model,"
Journal of Political Economy,
University of Chicago Press, vol. 91(4), pages 589-610, August.
- Robert J. Barro & David B. Gordon, 1981. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc.
- Maurice Obstfeld & Kenneth Rogoff, 1995.
"The Mirage of Fixed Exchange Rates,"
NBER Working Papers
5191, National Bureau of Economic Research, Inc.
- Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
- Pindyck, Robert S., 1975. "Optimal stabilization policies under decentralized control and conflicting objectives," Working papers 765-75., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Lohmann, Susanne, 1992. "Optimal Commitment in Monetary Policy: Credibility versus Flexibility," American Economic Review, American Economic Association, vol. 82(1), pages 273-86, March.
- Robert P. Flood & Peter Isard, 1988. "Monetary Policy Strategies," NBER Working Papers 2770, National Bureau of Economic Research, Inc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anna Xiao).
If references are entirely missing, you can add them using this form.