We consider a real options model for the optimal irreversible investment problem of a profit maximizing company. The company has the opportunity to invest into a production plant capable of producing two products, of which the prices follow two independent geometric Brownian motions. After...

We analyze in this chapter decision-making when costs and benefits of an action are uncertain, that is, when future preferences are uncertain. We begin, in Section 2, with the classical analysis by Krutilla et al. (1972) of whether the expected consumer's surplus is a correct measure of the net...

In this study, we analyze the investment-timing problem and introduce a model of two firms competing for investment preemption, each of which knows in advance the time at which the economic condition that will have an impact on the investment changes. We qualitatively show how two firms...

This paper examines how industry-specific uncertainty affects firms' investments for varying degrees of asset irreversibility (i.e. the wedge between purchase price and liquidation value of an asset). To identify more or less irreversible capital goods, we exploit unique survey data on German...