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    Rights statement: NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Economic Dynamics and Control. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Economic Dynamics and Control, [29, 7, (2005)] DOI 10.1016/j.jedc.2004.07.002

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Investment under uncertainty and policy change

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Investment under uncertainty and policy change. / Pawlina, G; Kort, Peter M.
In: Journal of Economic Dynamics and Control, Vol. 29, No. 7, 07.2005, p. 1193-1209.

Research output: Contribution to Journal/MagazineJournal articlepeer-review

Harvard

Pawlina, G & Kort, PM 2005, 'Investment under uncertainty and policy change', Journal of Economic Dynamics and Control, vol. 29, no. 7, pp. 1193-1209. https://doi.org/10.1016/j.jedc.2004.07.002

APA

Pawlina, G., & Kort, P. M. (2005). Investment under uncertainty and policy change. Journal of Economic Dynamics and Control, 29(7), 1193-1209. https://doi.org/10.1016/j.jedc.2004.07.002

Vancouver

Pawlina G, Kort PM. Investment under uncertainty and policy change. Journal of Economic Dynamics and Control. 2005 Jul;29(7):1193-1209. doi: 10.1016/j.jedc.2004.07.002

Author

Pawlina, G ; Kort, Peter M. / Investment under uncertainty and policy change. In: Journal of Economic Dynamics and Control. 2005 ; Vol. 29, No. 7. pp. 1193-1209.

Bibtex

@article{9db1fee4a57e43ea860e262464007161,
title = "Investment under uncertainty and policy change",
abstract = "In this paper the impact of a policy change on the investment behavior of the firm is studied in an incomplete information setting. The policy change occurs when a stochastic process describing the state of the economic environment reaches a certain trigger. The firm has incomplete information about the trigger and knows only its probability distribution. Consequently, both the firm's conjecture concerning the trigger value as well as the precision of this conjecture serve as input parameters. We derive the optimal investment rule maximizing the value of the firm and show that the impact of the trigger value uncertainty on the optimal investment threshold is non-monotonic: the threshold decreases with uncertainty for its low levels, while the reverse is true if uncertainty is high. Furthermore, we provide results concerning the valuation of the firm's investment opportunity and present some policy implications.",
keywords = "Investment under uncertainty, Real options , Policy change",
author = "G Pawlina and Kort, {Peter M}",
note = "NOTICE: this is the author{\textquoteright}s version of a work that was accepted for publication in Journal of Economic Dynamics and Control. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Economic Dynamics and Control, [29, 7, (2005)] DOI10.1016/j.jedc.2004.07.002",
year = "2005",
month = jul,
doi = "10.1016/j.jedc.2004.07.002",
language = "English",
volume = "29",
pages = "1193--1209",
journal = "Journal of Economic Dynamics and Control",
issn = "0165-1889",
publisher = "Elsevier",
number = "7",

}

RIS

TY - JOUR

T1 - Investment under uncertainty and policy change

AU - Pawlina, G

AU - Kort, Peter M

N1 - NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Economic Dynamics and Control. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Economic Dynamics and Control, [29, 7, (2005)] DOI10.1016/j.jedc.2004.07.002

PY - 2005/7

Y1 - 2005/7

N2 - In this paper the impact of a policy change on the investment behavior of the firm is studied in an incomplete information setting. The policy change occurs when a stochastic process describing the state of the economic environment reaches a certain trigger. The firm has incomplete information about the trigger and knows only its probability distribution. Consequently, both the firm's conjecture concerning the trigger value as well as the precision of this conjecture serve as input parameters. We derive the optimal investment rule maximizing the value of the firm and show that the impact of the trigger value uncertainty on the optimal investment threshold is non-monotonic: the threshold decreases with uncertainty for its low levels, while the reverse is true if uncertainty is high. Furthermore, we provide results concerning the valuation of the firm's investment opportunity and present some policy implications.

AB - In this paper the impact of a policy change on the investment behavior of the firm is studied in an incomplete information setting. The policy change occurs when a stochastic process describing the state of the economic environment reaches a certain trigger. The firm has incomplete information about the trigger and knows only its probability distribution. Consequently, both the firm's conjecture concerning the trigger value as well as the precision of this conjecture serve as input parameters. We derive the optimal investment rule maximizing the value of the firm and show that the impact of the trigger value uncertainty on the optimal investment threshold is non-monotonic: the threshold decreases with uncertainty for its low levels, while the reverse is true if uncertainty is high. Furthermore, we provide results concerning the valuation of the firm's investment opportunity and present some policy implications.

KW - Investment under uncertainty

KW - Real options

KW - Policy change

U2 - 10.1016/j.jedc.2004.07.002

DO - 10.1016/j.jedc.2004.07.002

M3 - Journal article

VL - 29

SP - 1193

EP - 1209

JO - Journal of Economic Dynamics and Control

JF - Journal of Economic Dynamics and Control

SN - 0165-1889

IS - 7

ER -