We incorporate both labor and capital as production inputs and discuss the effects of labor choice on a firm's optimal investment decision and output dynamics based on real options framework. In particular, we introduce different levels of labor flexibility and examine how it affects the firm's...

We examine the effect of investment lumpiness on firms’ default risk. A structural model is established and shows that firms with lumpier (or more indivisible) investments will encounter higher credit risk, all else being equal. We use the model solutions to simulate investment and default...