Showing 1 - 10 of 12,680
When individual petroleum-producing firms make their exploration and development investment timing decisions, positive information externalities and negative extraction externalities may lead them to interact strategically with their neighbors. This paper examines whether these inefficient...
Persistent link: https://www.econbiz.de/10011010062
Hurricane Katrina did massive damage because New Orleans and the Gulf Coast were not appropriately protected. Wherever natural disasters threaten, the government -- in its traditional role as public goods provider -- must decide what level of protection to provide to an area. It does so by...
Persistent link: https://www.econbiz.de/10005084856
For carbon-intensive, internationally-traded industrial goods, a unilateral increase in the domestic CO2 price may result in the reduction of the domestic production but an increase of imports. In such sectors as electricity, cement and steel, the trade flows result more from short-term regional...
Persistent link: https://www.econbiz.de/10010753161
Ambiguity is pervasive in many environments and is increasingly being introduced into economic and financial models. This paper characterises ambiguity in the form of newly defined Choquet random walks: discrete-time binomial trees with capacities instead of exact probabilities on their...
Persistent link: https://www.econbiz.de/10010753364
We analyze the investment decision of a population of time inconsistent entrepreneurs who overweight current payoffs relative to future returns. We show that, in order to avoid inefficient procrastination, agents may find it optimal to keep optimistic priors about their chances of success and...
Persistent link: https://www.econbiz.de/10005791696
We re-examine the basic investment problem of deciding when to incur a sunk cost to obtain a stochastically fluctuating benefit. The optimal investment rule satisfies a trade-off between a larger versus a later net benefit; we show that this trade-off is closely analogous to the standard...
Persistent link: https://www.econbiz.de/10005777454
Creditors, banks and bank regulators should evaluate whether a borrower is likely to default. I apply several techniques in the extensive mathematical literature of stochastic optimal control/dynamic programming to derive an optimal debt in an environment where there are risks on both the asset...
Persistent link: https://www.econbiz.de/10008474651
This paper explores how Knightian uncertainty affects dynamic properties in an economic growth model. The decision-making theory employed in the analysis is the theory of expected utility under a non-additive probability measure, i.e., the Choquet expected utility model of preference. We apply...
Persistent link: https://www.econbiz.de/10005091039
We develop a model to examine the timing of investment decisions in relation to the issuance of convertible debt by firms. Our model shows that when the demand shock has higher volatility, the firm finances the investment cost with high-coupon convertible debt. We find that default occurs...
Persistent link: https://www.econbiz.de/10010588230
We investigate the empirical linkages between sales uncertainty and firms’ inventory investment behavior while controlling for firms’ financial strength. Using large panels of manufacturing firms from several European countries we find that higher sales uncertainty leads to larger stocks of...
Persistent link: https://www.econbiz.de/10010599649