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Hybrid or Electric Vehicles? A Real Options Perspective

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  • Michi NISHIHARA

    () (Graduate School of Economics, Osaka University)

Abstract

This paper investigates the decision of an automaker concerning the alternative promotion of a hybrid vehicle (HV) and a full electric vehicle (EV). We evaluate the HV project by considering the option to change promotion from the HV to the EV in the future. The results not only extend previous findings concerning American options on multiple assets, but also include several new implications. One notable observation is that the increased market demand for EVs can accelerate the promotion of the HV because of the embedded option.

Suggested Citation

  • Michi NISHIHARA, 2009. "Hybrid or Electric Vehicles? A Real Options Perspective," Discussion Papers in Economics and Business 09-31, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  • Handle: RePEc:osk:wpaper:0931
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    File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/0931.pdf
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    Keywords

    real options; American options on multiple assets; exercise region; alternative projects; hybrid and electric vehicles.;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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