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Justifying the Origin of Real Options and their Difficult Evaluation in Strategic Management

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Author Info
Thierry Burger-Helmchen

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Abstract

This work explores and reviews the introduction of real option in the strategic management literature. The aim is to contribute to a better understanding of the origin of the real option. By distinguishing between shadow and real option, and implementing entrepreneurship in the traditional option valuation framework we obtain a more exhaustive representation of the strategic decision processes in the firm. We explain the creation of a real option as an entrepreneurial process, which transforms inventive ideas into profitable innovation. This constitutes a step toward an option based-theory of the firm by describing the emergence of a firm’s options and the strategic building of new competences for exercising these options. In addition, this approach offers a parallel understanding of why the real option theory is less used in practice than in theory.

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Paper provided by Bureau d'Economie Théorique et Appliquée, ULP, Strasbourg in its series Working Papers of BETA with number 2006-31.

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Date of creation: 2006
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Handle: RePEc:ulp:sbbeta:2006-31

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Related research
Keywords: Real Option; Theory of the Firm; Entrepreneurship; Dynamic Capabilities.;

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Find related papers by JEL classification:
L29 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Other
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups
M19 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Other

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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. Witt, Ulrich, 1998. "Imagination and leadership - The neglected dimension of an evolutionary theory of the firm," Journal of Economic Behavior & Organization, Elsevier, vol. 35(2), pages 161-177, April. [Downloadable!] (restricted)
  2. Patrick Cohendet & Patrick Llerena, 2003. "Routines and incentives: the role of communities in the firm," Industrial and Corporate Change, Oxford University Press, vol. 12(2), pages 271-297, April.
  3. Sydney D. Howell & Axel J. Jägle, 1997. "Laboratory Evidence on How Managers Intuitively Value Real Growth Options," Journal of Business Finance & Accounting, Blackwell Publishing, vol. 24(7&8), pages 915-935. [Downloadable!] (restricted)
  4. Busenitz, Lowell W. & Barney, Jay B., 1997. "Differences between entrepreneurs and managers in large organizations: Biases and heuristics in strategic decision-making," Journal of Business Venturing, Elsevier, vol. 12(1), pages 9-30, January. [Downloadable!] (restricted)
  5. Coff, Russell W. & Laverty, Kevin J., 2001. "Real options on knowledge assets: Panacea or Pandora's box?," Business Horizons, Elsevier, vol. 44(6), pages 73-79. [Downloadable!] (restricted)
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