Designing long-lived investments under uncertain and ongoing change:
Shall investments become more robust or more short-lived if unfavorable exogeneous conditions become more uncertain? What if the investments' design is irreversible for its whole life time? Such decision problems are frequently encountered, for example in infrastructure construction. We analyze...
Gespeichert in:
| Hauptverfasser: | , |
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| Format: | Elektronisch E-Book |
| Sprache: | English |
| Veröffentlicht: |
Oldenburg
Department of Economics, University of Oldenburg
February 7, 2017
|
| Schriftenreihe: | Oldenburg discussion papers in economics
V-398-17 |
| Online-Zugang: | 10419/171164 Volltext Volltext |
| Zusammenfassung: | Shall investments become more robust or more short-lived if unfavorable exogeneous conditions become more uncertain? What if the investments' design is irreversible for its whole life time? Such decision problems are frequently encountered, for example in infrastructure construction. We analyze this problem by combining an irreversible design decision when the investment starts with an irreversible decision to abandon an outdated investment. We formulate the second decision as a stopping problem of stochastic dynamic control, derive the value function, and the comparative statics for an optimal design. We find a decreasing optimal expected life-time and decreasing robustness for more rapidly changing conditions if the original life-time is not too large. For rising uncertainty, originally shorter-lived investments' life-times are expanded. For more long-lived investments, these effects may reverse. There can be a case for making investments less robust in the light of uncertain and ongoing change |
| Beschreibung: | 1 Online-Ressource (circa 33 Seiten) |
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| publisher | Department of Economics, University of Oldenburg |
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| series | Oldenburg discussion papers in economics |
| series2 | Oldenburg discussion papers in economics |
| spelling | Eisenack, Klaus Verfasser (DE-588)140774912 aut Designing long-lived investments under uncertain and ongoing change Klaus Eisenack, Marius Paschen Oldenburg Department of Economics, University of Oldenburg February 7, 2017 1 Online-Ressource (circa 33 Seiten) txt rdacontent c rdamedia cr rdacarrier Oldenburg discussion papers in economics V-398-17 Shall investments become more robust or more short-lived if unfavorable exogeneous conditions become more uncertain? What if the investments' design is irreversible for its whole life time? Such decision problems are frequently encountered, for example in infrastructure construction. We analyze this problem by combining an irreversible design decision when the investment starts with an irreversible decision to abandon an outdated investment. We formulate the second decision as a stopping problem of stochastic dynamic control, derive the value function, and the comparative statics for an optimal design. We find a decreasing optimal expected life-time and decreasing robustness for more rapidly changing conditions if the original life-time is not too large. For rising uncertainty, originally shorter-lived investments' life-times are expanded. For more long-lived investments, these effects may reverse. There can be a case for making investments less robust in the light of uncertain and ongoing change Paschen, Marius Verfasser aut Oldenburg discussion papers in economics V-398-17 (DE-604)BV039810434 398 10419/171164 http://www.uni-oldenburg.de/fileadmin/user_upload/wire/fachgebiete/vwl/V-398-17.pdf Verlag kostenfrei Volltext http://hdl.handle.net/10419/171164 Resolving-System kostenfrei Volltext |
| spellingShingle | Eisenack, Klaus Paschen, Marius Designing long-lived investments under uncertain and ongoing change Oldenburg discussion papers in economics |
| title | Designing long-lived investments under uncertain and ongoing change |
| title_auth | Designing long-lived investments under uncertain and ongoing change |
| title_exact_search | Designing long-lived investments under uncertain and ongoing change |
| title_full | Designing long-lived investments under uncertain and ongoing change Klaus Eisenack, Marius Paschen |
| title_fullStr | Designing long-lived investments under uncertain and ongoing change Klaus Eisenack, Marius Paschen |
| title_full_unstemmed | Designing long-lived investments under uncertain and ongoing change Klaus Eisenack, Marius Paschen |
| title_short | Designing long-lived investments under uncertain and ongoing change |
| title_sort | designing long lived investments under uncertain and ongoing change |
| url | 10419/171164 http://www.uni-oldenburg.de/fileadmin/user_upload/wire/fachgebiete/vwl/V-398-17.pdf http://hdl.handle.net/10419/171164 |
| volume_link | (DE-604)BV039810434 |
| work_keys_str_mv | AT eisenackklaus designinglonglivedinvestmentsunderuncertainandongoingchange AT paschenmarius designinglonglivedinvestmentsunderuncertainandongoingchange |