Advanced Search
MyIDEAS: Login

Expandability, Reversibility, and Optimal Capacity Choice

Contents:

Author Info

  • Avinash K. Dixit
  • Robert S. Pindyck

Abstract

We develop continuous-time models of capacity choice when demand fluctuates stochastically, and the firm's opportunities to expand or contract are limited. Specifically consider costs of investing or disinvesting that vary with time, or with the amount of capacity already installed. The firm's limited opportunities to expand or contract create call and put options on incremental units of capital; we show how the values of these options affect the firm's investment decisions.

Download Info

If 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.
File URL: http://www.nber.org/papers/w6373.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6373.

as in new window
Length:
Date of creation: Jan 1998
Date of revision:
Publication status: published as Brennan, M. J. and L. Trigeorgis (eds.) Project Flexibility, Agency, and Competition. Oxford University Press, 1999.
Handle: RePEc:nbr:nberwo:6373

Note: IO
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
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.:
as in new window
  1. McDonald, Robert L & Siegel, Daniel R, 1985. "Investment and the Valuation of Firms When There Is an Option to Shut Down," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(2), pages 331-49, June.
  2. Dixit, A., 1988. "Entry And Exit Decisions Under Uncertainty," Papers 91, Princeton, Department of Economics - Financial Research Center.
  3. Avinash Dixit, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-132, Winter.
  4. Pindyck, Robert S., 1986. "Irreversible investment, capacity choice, and the value of the firm," Working papers 1802-86., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  5. Dixit, Avinash, 1995. "Irreversible investment with uncertainty and scale economies," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 327-350.
  6. Andrew B. Abel & Avinash K. Dixit & Janice B. Eberly & Robert S. Pindyck, . "Options, the Value of Capital, and Investment," Rodney L. White Center for Financial Research Working Papers 15-95, Wharton School Rodney L. White Center for Financial Research.
  7. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
  8. Pindyck, Robert S., 1990. "Irreversibility, uncertainty, and investment," Working papers 3137-90., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  9. Trigeorgis, Lenos, 1993. "The Nature of Option Interactions and the Valuation of Investments with Multiple Real Options," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(01), pages 1-20, March.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Michele Moretto & Sergio Vergalli, 2010. "Managing Migration through Conflicting Policies: an Option-theory Perspective," "Marco Fanno" Working Papers 0110, Dipartimento di Scienze Economiche "Marco Fanno".
  2. Li, Yong & James, Barclay & Madhavan, Ravi & Mahoney, Joseph T., 2006. "Real Options: Taking Stock and Looking Ahead," Working Papers 06-0114, University of Illinois at Urbana-Champaign, College of Business.
  3. Michele Moretto & Sergio Vergalli, 2008. "Managing Migration through Quotas: an Option-theory Perspective," Working Papers 2008.51, Fondazione Eni Enrico Mattei.
  4. Richard Hartman & Michael Hendrickson, 1999. "Optimal Partially Reversible Investment," Discussion Papers in Economics at the University of Washington 0032, Department of Economics at the University of Washington.
  5. Aurelie Slechten, 2011. "Intertemporal Links in Cap-and Trade Schemes," Working Papers ECARES ECARES 2011-014, ULB -- Universite Libre de Bruxelles.
  6. Sergio Vergalli, 2011. "Entry and Exit Strategies in Migration Dynamics," Journal of Labor Research, Springer, vol. 32(4), pages 362-389, December.
  7. Alessandro Fedele & Paolo M. Panteghini & Sergio Vergalli, 2011. "Optimal Investment and Financial Strategies under Tax‐Rate Uncertainty," German Economic Review, Verein für Socialpolitik, vol. 12(4), pages 438-468, November.
  8. Francesca Barion & Raffaele Miniaci & Paolo M Panteghini & Maria Laura Parisi, 2010. "Profit shifting by debt financing in Europe," Working Papers 1007, University of Brescia, Department of Economics.
  9. Hintermaier, Thomas & Steinberger, Thomas, 2002. "Occupational Choice and the Private Equity Premium Puzzle," Economics Series 122, Institute for Advanced Studies.
  10. Adela Luque, 2002. "An option-value approach to technology adoption in U.S. manufacturing: Evidence from microdata," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 11(6), pages 543-568.
  11. Michael Ye & John Zyren & Joanne Shore, 2006. "Short-Run Crude Oil Price and Surplus Production Capacity," International Advances in Economic Research, Springer, vol. 12(3), pages 390-394, August.
  12. Egil Matsen & Snorre Lindset, 2007. "Optimal Portfolio Choice and Investment in Education," Working Paper Series 8707, Department of Economics, Norwegian University of Science and Technology.
  13. Lee, Tan, 2004. "Determinants of the foreign equity share of international joint ventures," Journal of Economic Dynamics and Control, Elsevier, vol. 28(11), pages 2261-2275, October.
  14. Jyh-Bang Jou, 2001. "Environment, Asset Characteristics, and Optimal Effluent Fees," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 20(1), pages 27-39, September.
  15. Michael Ye & John Zyren & Carol Blumberg & Joanne Shore, 2009. "A Short-Run Crude Oil Price Forecast Model with Ratchet Effect," Atlantic Economic Journal, International Atlantic Economic Society, vol. 37(1), pages 37-50, March.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:6373. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.