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Dynamic project selection

Author

Listed:
  • Nikandrova, Arina

    () (Department of Economics, Mathematics and Statistics, Birkbeck, University of London)

  • Pancs, Romans

    () (Centro de Investigación Económica, Instituto Tecnológico Autónomo de México)

Abstract

We study a normative model of an internal capital market that a company uses to choose between its two divisions’ projects. Each project's value is initially unknown to all, but can be dynamically learned by the corresponding division. Learning can be suspended or resumed at any time and is costly. We characterize an internal capital market that maximizes the company’s expected cash flow.

Suggested Citation

  • Nikandrova, Arina & Pancs, Romans, 2018. "Dynamic project selection," Theoretical Economics, Econometric Society, vol. 13(1), January.
  • Handle: RePEc:the:publsh:2379
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    File URL: http://econtheory.org/ojs/index.php/te/article/viewFile/20180115/19830/592
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    Cited by:

    1. Olivier Gossner & Jakub Steiner & Colin Stewart, 2018. "Attention Please!," Working Papers tecipa-626, University of Toronto, Department of Economics.
    2. Yeon-Koo Che & Konrad Mierendorff, 2019. "Optimal Dynamic Allocation of Attention," American Economic Review, American Economic Association, vol. 109(8), pages 2993-3029, August.

    More about this item

    Keywords

    Internal capital market; irreversible project selection;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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