Does waiting matter? An equilibrium model with firm-specific demand
We model a one-sector economy where a large number of firms undertake two-step irreversible investment - patenting and production - conditional on firm-specific demand processes and constant investment costs. The results include a criterion for whether it will be optimal to split the two investments in time. Typically, waiting is optimal if demand is highly expected to increase or if it is highly volatile, if the discount rate is low, and it the patent cost is low relative to the production cost.
Publisert i 3rd annual international conference on real options, 1999
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