In a model with stochastic interest rates, irreversible investment, and two investment dates, the value of investment delay has two components: the expected gain from committing now to investment at a future date and the potential gain from the ability to reverse this commitment. Holding net...

We analyze the dynamic investment decision of a firm subject to an endogenous financing constraint. The threat of future funding shortfalls lowers the value of the firm's timing options and encourages acceleration of investment beyond the first-best optimal level. As well as highlighting another...

This paper presents a model of competing payment schemes. Unlike previous work on generic twosided markets, the model allows for the fact that in a payment system users on one side of the market (merchants) compete to attract users on the other side (consumers who may use cards for purchases)....

Generators supplying electricity markets are subject to volatile input and output prices and uncertain fuel availability. We show that a price-taking generator will generate only when the output price exceeds its operational marginal cost by the value of the option to delay the use of stored...

Real option analysis typically assumes that projects are continuously evaluated and launched at precisely the time determined to be optimal, but real world projects cannot be managed in this way because of the costs of formally evaluating an investment opportunity. This paper shows that...

We present a new adjustment rule for interrupted cricket matches that equalizes the probability of winning before and after the interruption. Our proposal differs from existing rules in the quantity preserved (the probability of winning), and also in the point at which it is measured (the time...

This paper surveys the theoretical literature investigating the effect of firms’ investment flexibility on the cross-section of expected stock returns. Real options analysis derives firms’ value-maximizing investment policies as functions of exogenous fundamental drivers of profitability and...

The last thirty years have witnessed a fundamental change in the regulation of infrastructure industries. Whereas firms were subject to rate of return regulation and protected from entry in the past now they face various forms of incentive regulation competition is actively promoted by many...