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Irreversible Investment with Strategic Interactions

Mason, Robin and Weeds, Helen (2001) Irreversible Investment with Strategic Interactions. Working Paper. CEPR Discussion Papers 3013.

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Abstract

This Paper examines irreversible investment in a project with uncertain returns, when there is an advantage to being the first to invest, and externalities to investing when others also do so. Pre-emption decreases and may even eliminate the option values created by irreversibility and uncertainty. Externalities introduce inefficiencies in investment decisions. Pre-emption and externalities combined can actually hasten, rather than delay, investment, contrary to the usual outcome. These facts demonstrate the importance of extending 'real options' analysis to include strategic interactions.

Item Type: Monograph (Working Paper)
Uncontrolled Keywords: network effects; pre-emption; real options
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Jim Jamieson
Date Deposited: 18 Jul 2012 00:10
Last Modified: 18 Jul 2012 00:10
URI: http://repository.essex.ac.uk/id/eprint/3053

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