This paper examines the production decision of the competitive firm under uncertainty when the firm is not only risk averse but also regret averse. Regret-averse preferences are characterized by a modified utility function that includes disutility from having chosen ex-post suboptimal...

This paper examines the optimal mix of fixed and variable rate loans of a competitive bank facing funding cost uncertainty, where the bank is not only risk averse but also regret averse. Regret aversion is characterized by a utility function that includes disutility from having chosen ex-post...

This paper develops a real options model of a price-setting cartel under uncertainty to examine whether market demand volatility facilitates collusion or not. We show that there is a critical level of market demand (the optimal defection trigger) above which firms find it desirable to defect...

This paper develops a real options model of an all-equity financed firm that receives mean-reverting earnings and is subject to progressive taxation. Tax progression arises from an exogenously given tax exemption threshold such that the firm pays no corporate income taxes should its earnings be...

This paper develops a real options model of a firm that operates in continuous time with an infinite horizon. The firm receives stochastic profit flows that are subject to progressive taxation. Tax progression arises from an exogenously given tax exemption threshold that makes the average tax...

This paper examines the optimal bank interest margin, i.e., the spread between the loan rate and the deposit rate of a bank, when the bank is not only risk-averse but also regret-averse. Regret-averse preferences are characterized by a utility function that includes disutility from having chosen...

This paper examines the effect of progressive taxation on a firm's investment intensity and timing decisions using a real options approach. The firm possesses a perpetual option to invest in a project at any instant by incurring an irreversible investment cost at that time. The amount of the...

This paper examines the behavior of a regret-averse producer facing revenue risk. To insure against the revenue risk, the producer can purchase a coinsurance contract with an endogenously chosen coinsurance rate. Regret-averse preferences are characterized by a utility function that includes...

This paper examines the effect of progressive taxation on a firm's investment intensity and timing decisions using a real options approach. The firm possesses a perpetual option to invest in a project at any instant by incurring an irreversible investment cost at that time. The amount of the...

This paper examines the optimal mix of fixed and variable rate loans of a competitive bank facing uncertain funding costs. The bank's preferences are state-dependent in that the utility function depends on a state variable. We show that the optimal amount of loans extended by the bank depends...