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Partially Irreversible Investment Decisions and Taxation under Uncertainty: A Real Option Approach

  • Caren Sureth
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    The paper applies contingent claims analysis in a real option investment model in order to investigate taxation's influence on investor's decisions under uncertainty. The results show the distortion from realistic-type tax systems, allow to identify a tax-induced paradox in option valuation for specific settings and acknowledge the property of investment neutrality of well-known 'ideal' tax systems in the context of different degrees of irreversibility. Furthermore, it is clarified that the idea of risk-neutral valuation cannot be adopted by the real option approach in general. Copyright Verein fü Socialpolitik and Blackwell Publishers Ltd 2002.

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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/1468-0475.00057
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    Article provided by Verein für Socialpolitik in its journal German Economic Review.

    Volume (Year): 3 (2002)
    Issue (Month): 2 (05)
    Pages: 185-221

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    Handle: RePEc:bla:germec:v:3:y:2002:i:2:p:185-221
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