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Socio-technical transition processes: A real option based reasoning

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  • Arman Avadikyan
  • Patrick Llerena

Abstract

Using a real option reasoning perspective we study the uncertainties and irreversibilities that impact the investment decisions of firms during the different phases of technological transitions. The analysis of transition dynamics via real options reasoning allows the provision of an alternative and more qualified explanation of investment decisions according to the sequentiality of pathways considered. In our framework, flexibility management through option investments concerns both the incumbent and the future technological regime. In the first case it refers to ex-post flexibility management and in the second case to ex-ante flexibility management.

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Paper provided by Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg in its series Working Papers of BETA with number 2009-21.

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Date of creation: 2009
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Handle: RePEc:ulp:sbbeta:2009-21

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  1. Pistorius, C. W. I. & Utterback, J. M., 1997. "Multi-mode interaction among technologies," Research Policy, Elsevier, vol. 26(1), pages 67-84, March.
  2. Hobday, Mike & Rush, Howard & Tidd, Joe, 2000. "Innovation in complex products and system," Research Policy, Elsevier, vol. 29(7-8), pages 793-804, August.
  3. Avinash Dixit, 1992. "Investment and Hysteresis," Journal of Economic Perspectives, American Economic Association, vol. 6(1), pages 107-132, Winter.
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  5. Smith, Adrian & Stirling, Andy & Berkhout, Frans, 2005. "The governance of sustainable socio-technical transitions," Research Policy, Elsevier, vol. 34(10), pages 1491-1510, December.
  6. Davies, Andrew, 1996. "Innovation in Large Technical Systems: The Case of Telecommunications," Industrial and Corporate Change, Oxford University Press, vol. 5(4), pages 1143-80.
  7. Gil, Nuno, 2007. "On the value of project safeguards: Embedding real options in complex products and systems," Research Policy, Elsevier, vol. 36(7), pages 980-999, September.
  8. 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.
  9. Suarez, Fernando F., 2004. "Battles for technological dominance: an integrative framework," Research Policy, Elsevier, vol. 33(2), pages 271-286, March.
  10. Ulrich, Karl, 1995. "The role of product architecture in the manufacturing firm," Research Policy, Elsevier, vol. 24(3), pages 419-440, May.
  11. Geels, Frank W., 2002. "Technological transitions as evolutionary reconfiguration processes: a multi-level perspective and a case-study," Research Policy, Elsevier, vol. 31(8-9), pages 1257-1274, December.
  12. Robert C. Merton, 1973. "Theory of Rational Option Pricing," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 141-183, Spring.
  13. Floortje Alkemade & Koen Frenken & Marko Hekkert & Malte Schwoon, 2009. "A complex systems methodology to transition management," Journal of Evolutionary Economics, Springer, vol. 19(4), pages 527-543, August.
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