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Optimal exercise of jointly held real options: a Nash bargaining approach with value diversion

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Optimal exercise of jointly held real options : a Nash bargaining approach with value diversion. / Banerjee, Shantanu; Gucbilmez, Ufuk; Pawlina, Grzegorz.

In: European Journal of Operational Research, Vol. 239, No. 2, 01.12.2014, p. 565–578.

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Banerjee, Shantanu ; Gucbilmez, Ufuk ; Pawlina, Grzegorz. / Optimal exercise of jointly held real options : a Nash bargaining approach with value diversion. In: European Journal of Operational Research. 2014 ; Vol. 239, No. 2. pp. 565–578.

Bibtex

@article{7d7cb8d1148149daae3db3597820e09a,
title = "Optimal exercise of jointly held real options: a Nash bargaining approach with value diversion",
abstract = "This paper provides a two-stage decision framework in which two or more parties exercise a jointly held real option. We show that a single party{\textquoteright}s timing decision is always socially efficient if it precedes bargaining on the terms of sharing. However, if the sharing rule is agreed before the exercise timing decision is made, then socially optimal timing is attained only if there is a cash payment element in the division of surplus. If the party that chooses the exercise timing can divert value from the project, then the first-best outcome may not be possible at all and the second-best outcome may be implemented using a contract that is generally not optimal in the former cases. Our framework contributes to the understanding of a range of empirical regularities in corporate and entrepreneurial finance.",
keywords = "Decision analysis, Investment timing, Real options, Nash bargaining solution, Agency problem",
author = "Shantanu Banerjee and Ufuk Gucbilmez and Grzegorz Pawlina",
year = "2014",
month = dec,
day = "1",
doi = "10.1016/j.ejor.2014.06.004",
language = "English",
volume = "239",
pages = "565–578",
journal = "European Journal of Operational Research",
issn = "0377-2217",
publisher = "Elsevier Science B.V.",
number = "2",

}

RIS

TY - JOUR

T1 - Optimal exercise of jointly held real options

T2 - a Nash bargaining approach with value diversion

AU - Banerjee, Shantanu

AU - Gucbilmez, Ufuk

AU - Pawlina, Grzegorz

PY - 2014/12/1

Y1 - 2014/12/1

N2 - This paper provides a two-stage decision framework in which two or more parties exercise a jointly held real option. We show that a single party’s timing decision is always socially efficient if it precedes bargaining on the terms of sharing. However, if the sharing rule is agreed before the exercise timing decision is made, then socially optimal timing is attained only if there is a cash payment element in the division of surplus. If the party that chooses the exercise timing can divert value from the project, then the first-best outcome may not be possible at all and the second-best outcome may be implemented using a contract that is generally not optimal in the former cases. Our framework contributes to the understanding of a range of empirical regularities in corporate and entrepreneurial finance.

AB - This paper provides a two-stage decision framework in which two or more parties exercise a jointly held real option. We show that a single party’s timing decision is always socially efficient if it precedes bargaining on the terms of sharing. However, if the sharing rule is agreed before the exercise timing decision is made, then socially optimal timing is attained only if there is a cash payment element in the division of surplus. If the party that chooses the exercise timing can divert value from the project, then the first-best outcome may not be possible at all and the second-best outcome may be implemented using a contract that is generally not optimal in the former cases. Our framework contributes to the understanding of a range of empirical regularities in corporate and entrepreneurial finance.

KW - Decision analysis

KW - Investment timing

KW - Real options

KW - Nash bargaining solution

KW - Agency problem

U2 - 10.1016/j.ejor.2014.06.004

DO - 10.1016/j.ejor.2014.06.004

M3 - Journal article

VL - 239

SP - 565

EP - 578

JO - European Journal of Operational Research

JF - European Journal of Operational Research

SN - 0377-2217

IS - 2

ER -