Expandability, reversibility, and optimal capacity choice
We develop continuous-time models of capacity choice when demand fluctuates stochastically, and the firm's opportunities to expand or contract are limited. Specifically, we consider costs of investing or disinvesting that vary with time, or with the amount of capacity already installed. The fir...
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| Other Authors: | |
| Format: | Working Paper |
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MIT Center for Energy and Environmental Policy Research
2009
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| Online Access: | http://hdl.handle.net/1721.1/50228 |
| _version_ | 1826189221612748800 |
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| author | Dixit, Avinash K. Pindyck, Robert S. |
| author2 | Massachusetts Institute of Technology. Center for Energy and Environmental Policy Research. |
| author_facet | Massachusetts Institute of Technology. Center for Energy and Environmental Policy Research. Dixit, Avinash K. Pindyck, Robert S. |
| author_sort | Dixit, Avinash K. |
| collection | MIT |
| description | We develop continuous-time models of capacity choice when demand fluctuates stochastically, and the firm's opportunities to expand or contract are limited. Specifically, we consider costs of investing or disinvesting that vary with time, or with the amount of capacity already installed. The firm's limited opportunities to expand or contract create call and put options on incremental units of capital; we show how the values of these options affect the firm's investment decisions. |
| first_indexed | 2024-09-23T08:11:26Z |
| format | Working Paper |
| id | mit-1721.1/50228 |
| institution | Massachusetts Institute of Technology |
| last_indexed | 2024-09-23T08:11:26Z |
| publishDate | 2009 |
| publisher | MIT Center for Energy and Environmental Policy Research |
| record_format | dspace |
| spelling | mit-1721.1/502282019-04-09T17:13:08Z Expandability, reversibility, and optimal capacity choice Dixit, Avinash K. Pindyck, Robert S. Massachusetts Institute of Technology. Center for Energy and Environmental Policy Research. We develop continuous-time models of capacity choice when demand fluctuates stochastically, and the firm's opportunities to expand or contract are limited. Specifically, we consider costs of investing or disinvesting that vary with time, or with the amount of capacity already installed. The firm's limited opportunities to expand or contract create call and put options on incremental units of capital; we show how the values of these options affect the firm's investment decisions. Research supported by the National Science Foundation and by the MIT Center for Energy and Environmental Policy Research. 2009-12-16T00:02:20Z 2009-12-16T00:02:20Z 1997 Working Paper 97006 http://hdl.handle.net/1721.1/50228 38543747 MIT-CEEPR (Series) ; 97-006WP. 28 p application/pdf MIT Center for Energy and Environmental Policy Research |
| spellingShingle | Dixit, Avinash K. Pindyck, Robert S. Expandability, reversibility, and optimal capacity choice |
| title | Expandability, reversibility, and optimal capacity choice |
| title_full | Expandability, reversibility, and optimal capacity choice |
| title_fullStr | Expandability, reversibility, and optimal capacity choice |
| title_full_unstemmed | Expandability, reversibility, and optimal capacity choice |
| title_short | Expandability, reversibility, and optimal capacity choice |
| title_sort | expandability reversibility and optimal capacity choice |
| url | http://hdl.handle.net/1721.1/50228 |
| work_keys_str_mv | AT dixitavinashk expandabilityreversibilityandoptimalcapacitychoice AT pindyckroberts expandabilityreversibilityandoptimalcapacitychoice |