We study the optimal decision to undertake a preventive investment by a firm operating in a market with uncertain demand and whose products are subject to a risk of malfunction. It has an incentive to do so because malfunctions have two negative effects on its revenue. First, every malfunction...

We study a sequential decision problem in which a firm has the option to invest in a project and can learn about the future profitability of this project prior to investment. The decision process is split into two stages. In the first stage the firm decides whether and how much to invest in...

This article studies the effect of different subsidy characteristics, like its size and withdrawal probability, on optimal investment timing and size. We find that increasing the risk of subsidy withdrawal, as well as increasing subsidy size, increases the firm's incentive to invest earlier but...