This article considers the value of information and optimal timing to acquire it in a model of irreversible investment. There are two types of uncertainties: first, the value of the investment project depends on an observable stochastic process, and second, it depends on an ex-ante uncertain parameter, whose true value may be learnt at a cost. The former type of uncertainty implies that the opp...

We extend McDonald and Siegel’s (1986) model to the case where the expected rate of return of a project cannot be observed but is known to be either low or high. Waiting and observing the realizations of the value of the project provides information to the investor who can update her beliefs about the true value of the expected return. Moreover, the investor can purchase some additional informa...

We investigate the timing of adoption of product and process innovation by using a differential game in which firms may invest in both activities. We consider horizontal product innovation that reduces product substitutability, and process innovation that reduces marginal cost. First, we demonstrate that the incentive for cost-reducing investment is relatively higher than the incentive to incre...

This study tests for the presence of real options effects induced by uncertainty and (partial) irreversibility on fixed capital investment using Italian company data. Our approach recognizes that firm-level investment spending may, itself, be aggregated over multiple investment decisions in separate types of capital goods and emphasizes effects of uncertainty on short-run investment dynamics. U...

We consider a setting in which insiders have information about income that outside shareholders do not, but property rights ensure that outside shareholders can enforce a fair payout. To avoid intervention, insiders report income consistent with outsiders’ expectations based on publicly available information rather than true income, resulting in an observed income and payout process that adjust...

Jovanovic and Nyarko (1996) showed that when agents learn-by-doing and are myopic, less advanced agents may adopt new technologies while more advanced ̄rms stick with the old technology since the new technology takes time to learn. In this case, the less advanced agents might eventually overtake (or \leapfrog") the advanced agents. We show that this kind of overtaking can also occur if agents ar...

This paper has two goals. First, to provide an accurate characterisation of the new small firm in Scotland by reference to markets, finance, costs, business strategy, human capital, internal organisation and technical change. Second, to use these same features to discover salient differences between small firms which either survive or close, two or three years after inception. The empirical evi...

We offer a framework to analyze Value-at-Risk based regulation rules and their possible distortion effects on financial markets. Our model is formulated in a continuous-time economy where investors maximize expected utility subject to some regulatory Value-at-Risk constraint when asset price dynamics are not lognormal and exhibit stochastic volatility. To retain tractability of the optimization...