The Radical Innovation Investment Decision Refined
AbstractWe refine modelling of the radical innovation decision in this paper by extending real option theory to include non-marginal stochastic jump processes. From the model analytics we determine that the average magnitude and frequency of non-marginal stochastic jump processes are the most important parameters in this highly uncertain decision process. We show that these stochastic shocks imply that investment in radical innovation may very often be too time consuming and/or expensive to remain attractive for private entrepreneurs.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7338.
Length: 26 pages
Date of creation: Apr 2013
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Find related papers by JEL classification:
- D92 - Microeconomics - - Intertemporal Choice - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-04-27 (All new papers)
- NEP-ENT-2013-04-27 (Entrepreneurship)
- NEP-INO-2013-04-27 (Innovation)
- NEP-KNM-2013-04-27 (Knowledge Management & Knowledge Economy)
- NEP-UPT-2013-04-27 (Utility Models & Prospect Theory)
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