Journal ArticleDOI
Entry and Exit Decisions under Uncertainty
Reads0
Chats0
TLDR
In this paper, a firm's entry and exit decisions when the output price follows a random walk are examined, where an idle firm and an active firm are viewed as assets that are call options on each other.Abstract:
A firm's entry and exit decisions when the output price follows a random walk are examined. An idle firm and an active firm are viewed as assets that are call options on each other. The solution is a pair of trigger prices for entry and exit. The entry trigger exceeds the variable cost plus the interest on the entry cost, and the exit trigger is less than the variable cost minus the interest on the exit cost. These gaps produce "hysteresis." Numerical solutions are obtained for several parameter values; hysteresis is found to be significant even with small sunk costs.read more
Citations
More filters
Posted Content
Irreversibility, Uncertainty, and Investment
TL;DR: In this article, the authors present some simple models of irreversible investment, and show how optimal investment rules and the valuation of projects and firms can be obtained from contingent claims analysis, or alternatively from dynamic programming.
Journal ArticleDOI
Is Learning by Exporting Important? Micro-Dynamic Evidence from Colombia, Mexico, and Morocco
TL;DR: In this paper, the causal links between exporting and productivity using plant-level data were analyzed. And the authors concluded that relatively efficient erms become exporters; however, in most industries, erms' costs are not affected by previous exporting activities.
Posted Content
Is "learning-by-exporting" important? Micro-dynamic evidence from Colombia, Mexico and Morocco
TL;DR: The authors analyzed the causal links between exporting and productivity using firm-level panel data from three semi-industrialized countries and found that relatively efficient firms become exporters, but firms' unit costs are not affected by previous export market participation, while the well-known efficiency gap between exporters and non-exporters is due to self-selection of the more efficient firms into the export market, rather than learning by exporting.
ReportDOI
Irreversibility, Uncertainty, and Investment
TL;DR: In this article, the authors review some basic models of irreversible investment to illustrate the option-like characteristics of investment opportunities, and show how optimal investment rules can be obtained from methods of option pricing, or alternatively from dynamic programming.
Journal ArticleDOI
International Technology Diffusion
TL;DR: In this paper, the authors survey what is known about the extent of international technology diffusion and channels through which technology spreads and suggest that domestic technology investments are necessary and sufficient for international diffusion.
References
More filters
Book
Theory of rational option pricing
TL;DR: In this paper, the authors deduced a set of restrictions on option pricing formulas from the assumption that investors prefer more to less, which are necessary conditions for a formula to be consistent with a rational pricing theory.
Journal ArticleDOI
Evaluating Natural Resource Investments
TL;DR: In this article, it is shown that continuous time arbitrage and stochastic control theory may be used not only to value such projects but also to determine the optimal policies for developing, managing, and abandoning them.
Journal ArticleDOI
Firing Costs and Labour Demand: How Bad is Eurosclerosis?
TL;DR: In this paper, a model of firms' optimal employment policies under linear adjustment costs is proposed, and it is shown that firing costs have a larger effect on firms' propensity to fire than to hire, and (slightly) increase average long run employment.
Journal ArticleDOI
Labor as a Quasi-Fixed Factor
TL;DR: In this paper, a short-run theory of employment is proposed based on the assumption that labor is a quasi-fixed factor, and the fixed employment costs arise from investments by firms in hiring and training activities.