Title: Real options game over the business cycle
Authors: Huang, Hsing-Hua
Chuang, Wei-Liang
資訊管理與財務金融系 註:原資管所+財金所
Department of Information Management and Finance
Keywords: Real options;Preemption game;Business cycle
Issue Date: 1-Sep-2013
Abstract: This paper studies the impact of business cycles on firms' strategic investment decisions by developing and solving a continuous time regime-dependent real options game in an asymmetric duopoly. The value functions, roles and optimal investment timing decisions of the two firms in the expansion and recession states are jointly determined. We show that the preemptive investment equilibrium, where the leader invests earlier than its own first-best investment timing, is pro-cyclical. Moreover, the simultaneous investment equilibrium, where the firms simultaneously invest late and enjoy waiting flexibility as a tacit collusion, is counter-cyclical. In addition, we specifically demonstrate that the values of the leader and follower in the expansion state are smaller than those in the recession state when the preemptive equilibrium prevails in the expansion state and the simultaneous equilibrium prevails in the recession state. (C) 2013 Elsevier B.V. All rights reserved.
URI: http://dx.doi.org/10.1016/j.econmod.2013.08.029
ISSN: 0264-9993
DOI: 10.1016/j.econmod.2013.08.029
Volume: 35
Begin Page: 715
End Page: 721
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