This paper provides a two-stage decision framework in which two or more parties exercise a jointly held real option. We show that a single party’s timing decision is always socially efficient if it precedes bargaining on the terms of sharing. However, if the sharing rule is agreed before the...

We introduce debt issuance limit constraints along with market debt and bank debt to consider how financial frictions affect investment, financing, and debt structure strategies. Our model provides four important results. First, a firm is more likely to issue market debt than bank debt when its...

In this paper we provide a model which describes how voluntary disclosure impacts on the timing of a firm’s investment decisions. A manager chooses a time to invest in a project and a time to disclose the investment return in order to maximise his monetary payoff. We assume that this payoff is...

In this paper, we use stochastic dynamic programming to model the choice of a municipality which has to design an optimal waste management program under uncertainty about the price of recyclables in the secondary market. The municipality can, by undertaking an irreversible investment, adopt a...

We treat real option value when the underlying process is arithmetic Brownian motion (ABM). In contrast to the more common assumption of geometric Brownian motion (GBM) and multiplicative diffusion, with ABM the underlying project value is expressed as an additive process. Its variance remains...

Applying a real option approach, this paper examines how asymmetric information alters key variables of a firm’s supplier switching process, such as the timing of contracting (hurried versus delayed contracting), transfer payments, set-up, switching, and abandonment decisions. In a symmetric...

Engineering and operations management decisions have become increasingly complex as a result of recent advances in information technology. The increased ability to access and communicate information has resulted in expanded system domains consisting of multiple agents, each exhibiting autonomous...

In this paper, we consider investments in eucalyptus plantations in Brazil. For such projects, we discuss real options valuation in the place conventional methods such as IRR or NPV, possibly with CAPM. Traditionally, real options valuation assumes complete markets and neglects market...

This paper investigates the relationship between market conditions and the value and use of sourcing flexibility for service processes. We develop and analyze a series of models, and we derive expressions for the optimal switching decision, the value of the option to outsource, the value of the...