Investment Timing, Capacity Choice and Optimal Floors and Ceilings

We develop a model for determining the optimal timing and capacity choice of investment under floors and ceilings (collars). We study how a welfare maximizing finite-lived collar can be optimally designed. Our findings show that for a linear demand function, multiple collar arrangements are optimal, including pure floors and fixed price regimes. Departing from previous literature, we show that pure ceiling regimes are never optimal. When the demand function is iso-elastic, optimal schemes are not attainable