Irreversible Investment in Alternative Projects
نویسندگان
چکیده
We examine the problem of a risk-neutral investor who has to choose among two alternative projects of different scales under output price uncertainty. We show that as soon as investment in the smaller scale project is sometimes optimal, the optimal investment strategy is not a trigger strategy and the optimal investment region is dichotomous. Whenever the investor has the opportunity to switch from the smaller scale to the larger scale project, the dichotomy of the investment region can persist even when uncertainty becomes large.
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