We present a model featuring irreversible investment, economies of scale, uncertain future demand and capital prices, and a regulator who sets the firm's output price according to the cost structure of a hypothetical replacement firm. We show that a replacement firm has a fundamental cost...

Real options analysis typically assumes that projects are continuously evaluated and launched at precisely the time determined to be optimal. However, real world projects cannot be managed in this way because of the costs of formally evaluating an investment opportunity. This paper analyzes how...

The last thirty years have witnessed a fundamental change in the regulation of infrastructure industries. Whereas firms were subject to rate of return regulation and protected from entry in the past, now they face various forms of incentive regulation, competition is actively promoted by many...

In infrastructure industries the permitted revenue of a regulated firm depends crucially on the choice of rate base and the allowed rate of return. In this paper we examine the impact of these two variables on the timing of the regulated firm's investment. Since the firm bears all the cost of...