This article statistically tests the option theory of irreversible investment. Using contingent claims valuation, we derive the value of options to invest in capacity, where the projects are endogenous to the economic circumstances prevailing at the investment date. We then test whether...

In this paper, the authors provide some missing elements to the theory of the regulated firm and discuss implications for econometric specification. Particular attention is paid to situations where capital is quasi-fixed under rate-of-return regulation, which may lead to serious specification...

We study a simple duopoly model of preemption with multiple investments and instantaneous Bertrand competition on a market of finite size driven by stochastic taste shocks. Different patterns of equilibria may arise, depending on the importance of the real option effect. If the average growth...

We study the development of a duopoly industry - evolution of firm capacities and competitive behavior - in a continuous-time real-options model of capacity investment. Our methodology allows the evaluation of investment options and exercise rules in a strategic setup. In the initial industry...

It is possible to make a current valuation of the effects of carbon dioxide which tracks a valuation done under the metric of expected present value and also tracks realized values. The implementation of a carbon credit scheme based on green accounting could go as follows: 1) At dates strictly...