This paper shows how the cash flows received by an unregulated firm operating in a workably competitive market can be replicated for a regulated firm. The only change to standard regulatory practice is that each time the regulated firm invests, the amount added to its rate base is the product of...

This paper analyzes the timing and density of urban development using a new intertemporal model featuring stochastic housing demand, a finite price elasticity of demand, cross-sectional variation in the amenity value of land, and property taxes. Equilibrium rent and house prices in a city are...

The existing real options literature explains the value premium as a consequence of either operating leverage raising risk in low-demand states or industry-wide investment lowering risk in high-demand states. This paper presents a simple model in which a value premium arises solely from capacity...

This paper surveys the theoretical literature investigating the effect of firms' investment flexibility on the cross-section of expected stock returns. Real options analysis derives firms' value-maximizing investment policies as functions of exogenous fundamental drivers of profitability and...

This paper uses an example involving a commercial real estate project to demonstrate the practical application of real options analysis. The approach described can be used to value the project at any stage of construction, which is especially useful when market conditions are poor and suspension...

We show how CEO ownership and the market for corporate control interact to influence the investment-timing decisions of empire-building CEOs. The prospect of a future takeover means that CEOs with no ownership stake will over-invest in some types of projects and under-invest in others, but these...

This paper presents a parsimonious model of a coastal locality's adaptation to rising sea levels and uses the model to examine cost-minimizing policies involving two complementary approaches. One involves irreversible investment in sea walls and similar infrastructure. The other involves...

A problem that often arises in applied finance is one where decision-makers need to choose a value for some parameter that will affect the cash flows between two parties, such as a rental rate or an exercise price. Because the values of the cash flows also depend on various unobservable...

Generators supplying electricity markets are subject to volatile input and output prices and uncertain fuel availability (water flows in the case of hydro and gas availability in the case of thermal plants). We show that a price-taking generator will only generate when the output price exceeds...

Racehorse trainers operate asset management businesses in which the assets owned by outside clients compete with those owned by managers for the latter's time, care and attention. Although this potentially leads to serious conflicts of interest, we find no evidence of an agency problem: in a...