Ranking Investment Projects
AbstractThis paper describes conditions under which one investment project dominates a second project in terms of net present value, irrespective of the choice of the discount rate. The resulting partial ordering of projects has certain similarities to stochastic dominance. However, the structure of the net present value function leads to characterizations that are quite specific to this context. Our theorems use Bernstein's (1915) innovative results on the representation and approximation of polynomials, as well as other general results from the theory of equations, to characterize the partial ordering. We also show how the ranking is altered when the range of discount rates is limited or the rate varies period by period.
Download InfoIf 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.
Bibliographic InfoPaper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0107.
Date of creation: Apr 2001
Date of revision:
Contact details of provider:
Web page: http://www.vanderbilt.edu/econ/wparchive/index.html
Investment projects; present value; stochastic dominance; polynomials; rate of return over cost; time dominance;
Other versions of this item:
- Foster, James E. & Mitra, Tapan, 2001. "Ranking Investment Projects," Working Papers, Cornell University, Center for Analytic Economics 01-06, Cornell University, Center for Analytic Economics.
- D92 - Microeconomics - - Intertemporal Choice - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
- O22 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Project Analysis
This paper has been announced in the following NEP Reports:
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.:
- J. Hirshleifer, 1958. "On the Theory of Optimal Investment Decision," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 66, pages 329.
- Foster, James E & Shorrocks, Anthony F, 1988. "Poverty Orderings," Econometrica, Econometric Society, Econometric Society, vol. 56(1), pages 173-77, January.
- Steinar Ekern., 1980.
"Time Dominance Efficiency Analysis,"
Research Program in Finance Working Papers, University of California at Berkeley
105, University of California at Berkeley.
- Bawa, Vijay S., 1975. "Optimal rules for ordering uncertain prospects," Journal of Financial Economics, Elsevier, Elsevier, vol. 2(1), pages 95-121, March.
- Shorrocks, Anthony F, 1983. "Ranking Income Distributions," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 50(197), pages 3-17, February.
- Bohren, Oyvind & Hansen, Terje, 1980. " Capital Budgeting with Unspecified Discount Rates," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 82(1), pages 45-58.
- Sen, Amartya, 1997. "On Economic Inequality," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780198292975, October.
- Sen, Amartya, 1975. "Minimal conditions for monotonicity of capital value," Journal of Economic Theory, Elsevier, Elsevier, vol. 11(3), pages 340-355, December.
- Pratt, John W & Hammond, John S, III, 1979. "Evaluating and Comparing Projects: Simple Detection of False Alarms," Journal of Finance, American Finance Association, American Finance Association, vol. 34(5), pages 1231-42, December.
- Murat Sertel & Arkadii Slinko, 2007.
"Ranking Committees, Income Streams or Multisets,"
Economic Theory, Springer,
Springer, vol. 30(2), pages 289-289, February.
- John Quah & Bruno Strulovici, 2011. "Discounting, Patience, and Dynamic Decision Making," Economics Series Working Papers 555, University of Oxford, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (John P. Conley).
If references are entirely missing, you can add them using this form.