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Investment under uncertainty : Timing and capacity optimization

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  • Wen, Xingang

    (Tilburg University, School of Economics and Management)

Abstract

This thesis consists of three chapters on analyzing the optimal investment timing and investment capacity for the firm(s) undertaking irreversible investment in an uncertain environment. Chapter 2 studies the investment decision of a monopoly firm when it can adjust output quantity in a market with uncertain demand. Chapter 3 investigates the strategic interactions of investment decisions between a first investor that always produces up to capacity and a second investor that can adjust the output quantity. Chapter 4 considers the regulator’s optimal subsidy policy to align the firm’s optimal investment decision to the social optimal decision.

Suggested Citation

  • Wen, Xingang, 2017. "Investment under uncertainty : Timing and capacity optimization," Other publications TiSEM 47363df4-fc3e-46b8-b7bd-a, Tilburg University, School of Economics and Management.
  • Handle: RePEc:tiu:tiutis:47363df4-fc3e-46b8-b7bd-a1a3ecbeee65
    Note: Dissertation
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    References listed on IDEAS

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    1. Reynolds, Stanley S. & Wilson, Bart J., 2000. "Bertrand-Edgeworth Competition, Demand Uncertainty, and Asymmetric Outcomes," Journal of Economic Theory, Elsevier, vol. 92(1), pages 122-141, May.
    2. repec:bla:randje:v:49:y:2018:i:1:p:23-42 is not listed on IDEAS
    3. Pindyck, Robert S, 1988. "Irreversible Investment, Capacity Choice, and the Value of the Firm," American Economic Review, American Economic Association, vol. 78(5), pages 969-985, December.
    4. Jan A. Van Mieghem & Maqbool Dada, 1999. "Price Versus Production Postponement: Capacity and Competition," Management Science, INFORMS, vol. 45(12), pages 1639-1649, December.
    5. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716.
    6. Vijay Paul Sharma & Hrima Thaker, 2010. "Fertilizer Subsidy in India: Who are the Beneficiaries?," Working Papers id:2794, eSocialSciences.
    7. A. Michael Spence, 1977. "Entry, Capacity, Investment and Oligopolistic Pricing," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 534-544, Autumn.
    8. Pennings, Enrico, 2000. "Taxes and stimuli of investment under uncertainty," European Economic Review, Elsevier, vol. 44(2), pages 383-391, February.
    9. Robert McDonald & Daniel Siegel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, Oxford University Press, vol. 101(4), pages 707-727.
    10. Xingang Wen & Peter M. Kort & Dolf Talman, 2017. "Volume flexibility and capacity investment: a real options approach," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 68(12), pages 1633-1646, December.
    11. Lavrutich, Maria N. & Huisman, Kuno J.M. & Kort, Peter M., 2016. "Entry deterrence and hidden competition," Journal of Economic Dynamics and Control, Elsevier, vol. 69(C), pages 409-435.
    12. Rodrik, Dani, 1992. "Political economy and development policy," European Economic Review, Elsevier, vol. 36(2-3), pages 329-336, April.
    13. Nalin Kulatilaka & Enrico C. Perotti, 1998. "Strategic Growth Options," Management Science, INFORMS, vol. 44(8), pages 1021-1031, August.
    14. Reynolds, Stanley S, 1987. "Capacity Investment, Preemption and Commitment in an Infinite Horizon Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(1), pages 69-88, February.
    15. Eric S. Maskin, 1999. "Uncertainty and entry deterrence," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 14(2), pages 429-437.
    16. McDonald, Robert L & Siegel, Daniel R, 1985. "Investment and the Valuation of Firms When There Is an Option to Shut Down," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(2), pages 331-349, June.
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