Ranking Investment Projects
This paper describes conditions under which one investment project dominates a second project in terms of net present value, irrespective of the choice of the discount rate. The resulting partial ordering of projects has certain similarities to stochastic dominance. However, the structure of the net present value function leads to characterizations that are quite specific to this context. Our theorems use Bernstein's (1915) innovative results on the representation and approximation of polynomials, as well as other general results from the theory of equations, to characterize the partial ordering. We also show how the ranking is altered when the range of discount rates is limited or the rate varies period by period.
|Date of creation:||Apr 2001|
|Contact details of provider:|| Web page: http://www.vanderbilt.edu/econ/wparchive/index.html|
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.:
- Foster, James E. & Shorrocks, Anthony F., 1988. "Inequality and poverty orderings," European Economic Review, Elsevier, vol. 32(2-3), pages 654-661, March.
- J. Hirshleifer, 1958. "On the Theory of Optimal Investment Decision," Journal of Political Economy, University of Chicago Press, vol. 66, pages 329-329.
- Ekern, Steinar, 1981.
"Time Dominance Efficiency Analysis,"
Journal of Finance,
American Finance Association, vol. 36(5), pages 1023-1034, December.
- Steinar Ekern., 1980. "Time Dominance Efficiency Analysis," Research Program in Finance Working Papers 105, University of California at Berkeley.
- Bohren, Oyvind & Hansen, Terje, 1980. " Capital Budgeting with Unspecified Discount Rates," Scandinavian Journal of Economics, Wiley Blackwell, vol. 82(1), pages 45-58.
- Sen, Amartya, 1997. "On Economic Inequality," OUP Catalogue, Oxford University Press, number 9780198292975.
- Sen, Amartya, 1975. "Minimal conditions for monotonicity of capital value," Journal of Economic Theory, Elsevier, vol. 11(3), pages 340-355, December.
- Bawa, Vijay S., 1975. "Optimal rules for ordering uncertain prospects," Journal of Financial Economics, Elsevier, vol. 2(1), pages 95-121, March.
- Pratt, John W & Hammond, John S, III, 1979. "Evaluating and Comparing Projects: Simple Detection of False Alarms," Journal of Finance, American Finance Association, vol. 34(5), pages 1231-1242, December.
- Shorrocks, Anthony F, 1983. "Ranking Income Distributions," Economica, London School of Economics and Political Science, vol. 50(197), pages 3-17, February.
- Foster, James E & Shorrocks, Anthony F, 1988. "Poverty Orderings," Econometrica, Econometric Society, vol. 56(1), pages 173-177, January.
- Michael Bruno & Edwin Burmeister & Eytan Sheshinski, 1966. "The Nature and Implications of the Reswitching of Techniques," The Quarterly Journal of Economics, Oxford University Press, vol. 80(4), pages 526-553. Full references (including those not matched with items on IDEAS)