A firm hiring new workers has a choice: it can either hire permanentquot; workers, which means entering into a quot;life-time employmentquot; (long term) contract with them, or quot;temporaryquot; ones, who can be hired and fired according to current needs. We assume that the latter are less...

The paper analyzes the benefits of retaining flexibility in a firm s hiring practices by building on Pindyck s (1988) model of irreversible investment. Two types of workers (contracts) are allowed to co-exist: permanent workers, who cannot be fired, and temporary ones, who are hired and fired...

The options-based approach to studying irreversible investment under uncertainty emphasizes that the opportunity cost of investment includes the value of the option to wait that is extinguished when an investment is undertaken. Thus, the investment decision is affected by the determinants of the...