Regime uncertainty and optimal investment timing

We construct a real options model in which a regime change is expected at a pre-determined future time and study the effects of regime uncertainty on a firm's strategic investment decision, taking into consideration the remaining time to the regime change and the probability of each regime stat...

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Bibliographic Details
Published inJournal of economic dynamics & control Vol. 33; no. 10; pp. 1796 - 1807
Main Authors Nishide, Katsumasa, Nomi, Ernesto Kazuhiro
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.10.2009
Elsevier
Elsevier Sequoia S.A
SeriesJournal of Economic Dynamics and Control
Subjects
Economic models
Enterprises
Investment
Investment decision
Investment timing
Investment timing Real options Policy change Regime uncertainty
Modelling
Policy change
Probability
Real options
Real options analysis
Regime transition
Regime uncertainty
Strategic planning
Studies
Time
Uncertainty
G32
Policy change
D81
D92
Real options
Investment timing
Regime uncertainty
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Summary:We construct a real options model in which a regime change is expected at a pre-determined future time and study the effects of regime uncertainty on a firm's strategic investment decision, taking into consideration the remaining time to the regime change and the probability of each regime state. We show that just before the time of a regime change, firms should act as if the worst-case scenario was about to happen, even if a good state is highly possible.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0165-1889
1879-1743
DOI:10.1016/j.jedc.2009.04.002