How does global warming affect firms' activities? We consider this issue from the perspective of theelectricity producing industry. Warmer temperatures increase the demand for air conditioning, the use of which fluctuates substantially over time, making investments in “flexible” power plants...

This paper studies the aggregate implications of microeconomic investment irreversibility and idiosyncratic uncertainty in a simple growth model by highlighting real option effects. We endogenize the drift rate of real option by connecting it to the state of the economy. Thereby, we extend the...