This article develops the perspective that joint ventures are created as real options to expand in response to future technological and market developments. The exercise of the option is accompanied by an acquisition of the venture. It is hypothesized that the timing of the acquisition should be...

This paper examines dynamic R&D investment policies and the valuation of R&D programs in a contingent claims framework. We incorporate the following characteristics of R&D programs into our model: learning-by-doing, collateral learning between different projects in the program, interaction...

Technology innovations continue to be one of the greatest drivers of economic growth. Realizing the value of such innovations, however, requires substantial follow-on investments in development and commercialization. The value of these investments is difficult to capture because of uncertain...

The paper presents a model that determines when (at which output price level) it is optimum for a firm to invest in environmental technologies and which are the main parameters that affect this decision. Our analysis shows that firms require high output price levels to be induced to invest in...

In this paper, we consider whether an increase in uncertainty increases the value of a research and development (R&D) project. We also consider the related question of the impact of increased project uncertainty on the value of management flexibility, defined as the difference in value when the...

The real options approach to capital budgeting focuses on valuing benefits of project flexibility. This paper presents an incentive consideration in such valuation. Operating flexibility not only allows a firm to change course in response to new information, but also allows interested observers...

This paper develops empirical proxy measures of information technology (IT) risk and incorporates them into the usual empirical models for analyzing IT returns: production function and market value specifications. The results suggest that IT capital investments make a substantially larger...

Recent court decisions, starting with the State Street decision in 1998, allow business methods to be patentable and now give financial institutions the option to seek patent protection for financial innovations. This new patentability paradigm and the heterogeneity of characteristics associated...

The multinational corporation is a network of activities located in different countries. The value of this network derives from the opportunity to benefit from uncertainty through the coordination of subsidiaries which are geographically dispersed. We model this coordination as the operating...

We provide a strategic rationale for growth options under uncertainty and imperfect competition. In a market with strategic competition, investment confers a greater capability to take advantage of future growth opportunities. This strategic advantage leads to the capture of a greater share of...