Investing in Biogas: Timing, Technological Choice and the Value of Flexibility from Inputs Mix
In a continuous-time framework we study the technology and investment choice problem of a continuous co-digestion biogas plant dealing with randomly fluctuating relative convenience of input factor costs. Input factors enter into the productive process together mixed according to a given initial rule. Being inputs relative convenience stochastically evolving, a successive revision of the initial rule may be desirable. Hence, when the venture starts the manager may or may not install a flexible technology allowing for such option. Investment is irreversible and flexibility is costly. The problem is solved determining in the light of future prospects the optimal revision and then playing backward fixing the investment timing rule.
|Date of creation:||Oct 2009|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.feem.it/
More information through EDIRC
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.:
- He, Hua. & Pindyck, Robert S., 1989.
"Investments in flexible production capacity,"
2102-89., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Wang, Li Ming & Liu, Li Wen & Wang, Yong Jie, 2007. "Capacity decisions and supply price games under flexibility of backward integration," International Journal of Production Economics, Elsevier, vol. 110(1-2), pages 85-96, October.
- Mæng, H. & Lund, H. & Hvelplund, F., 1999. "Biogas plants in Denmark: technological and economic developments," Applied Energy, Elsevier, vol. 64(1-4), pages 195-206, September.
- Cox, John C. & Ross, Stephen A., 1976. "The valuation of options for alternative stochastic processes," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 145-166.
- Dixit, A., 1988.
"Entry And Exit Decisions Under Uncertainty,"
91, Princeton, Department of Economics - Financial Research Center.
- Brennan, Michael J & Schwartz, Eduardo S, 1985. "Evaluating Natural Resource Investments," The Journal of Business, University of Chicago Press, vol. 58(2), pages 135-57, April.
- Triantis, Alexander J & Hodder, James E, 1990. " Valuing Flexibility as a Complex Option," Journal of Finance, American Finance Association, vol. 45(2), pages 549-65, June.
- Michele Moretto & Gianpaolo Rossini, 2008.
"Vertical Integration and Operational Flexibility,"
2008.37, Fondazione Eni Enrico Mattei.
- Alvarez, Luis H.R. & Stenbacka, Rune, 2007. "Partial outsourcing: A real options perspective," International Journal of Industrial Organization, Elsevier, vol. 25(1), pages 91-102, February.
When requesting a correction, please mention this item's handle: RePEc:fem:femwpa:2009.84. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (barbara racah)
If references are entirely missing, you can add them using this form.