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Capacity Choice in a Two-Stage Problem Under Uncertainty

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  • Hennessy, David A.

Abstract

When choosing production capacity, a firm may not know which among mutually exclusive projects will be most profitable. It may be possible to await more information before committing given capacity to a project. We identify when shifts in project profitability and firm pecking order increase ex ante optimal capacity choice.

Suggested Citation

  • Hennessy, David A., 1999. "Capacity Choice in a Two-Stage Problem Under Uncertainty," Staff General Research Papers Archive 1707, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genres:1707
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    References listed on IDEAS

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    1. Meyer, Jack & Ormiston, Michael B, 1985. "Strong Increases in Risk and Their Comparative Statics," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(2), pages 425-437, June.
    2. Eeckhoudt, Louis & Gollier, Christian, 1995. "Demand for Risky Assets and the Monotone Probability Ratio Order," Journal of Risk and Uncertainty, Springer, vol. 11(2), pages 113-122, September.
    3. Peter C. Fishburn & R. Burr Porter, 1976. "Optimal Portfolios with One Safe and One Risky Asset: Effects of Changes in Rate of Return and Risk," Management Science, INFORMS, vol. 22(10), pages 1064-1073, June.
    4. Paul R. Milgrom, 1981. "Good News and Bad News: Representation Theorems and Applications," Bell Journal of Economics, The RAND Corporation, vol. 12(2), pages 380-391, Autumn.
    5. Ormiston, Michael B, 1992. "First and Second Degree Transformations and Comparative Statics under Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(1), pages 33-44, February.
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    Cited by:

    1. Backe, Stian & Ahang, Mohammadreza & Tomasgard, Asgeir, 2021. "Stable stochastic capacity expansion with variable renewables: Comparing moment matching and stratified scenario generation sampling," Applied Energy, Elsevier, vol. 302(C).
    2. Mihelic, Jurij & Mahjoub, Amine & Rapine, Christophe & Robic, Borut, 2010. "Two-stage flexible-choice problems under uncertainty," European Journal of Operational Research, Elsevier, vol. 201(2), pages 399-403, March.
    3. Dulluri, Sandeep & Raghavan, N.R. Srinivasa, 2008. "Collaboration in tool development and capacity investments in high technology manufacturing networks," European Journal of Operational Research, Elsevier, vol. 187(3), pages 962-977, June.

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