Publication Type
Working Paper
Version
publishedVersion
Publication Date
1-2011
Abstract
We consider a simple two-period model of irreversible investment under strategic interactions between two players. In this setup, we show that the quasi-option value may cause some conceptual difficulties. In case of asymmetric information, decentralized investment decisions fail to induce first-best allocations. Therefore a regulator may not be able to exercise the option to delay the decision to develop. We also show that information-induced inefficiency may arise in a game situation and that under certain assumptions inefficiency can be eliminated by sending asymmetric information to the players, even when the regulator faces informational constraints. Our model is potentially applicable to various global environmental problems.
Keywords
Biodiversity, Irreversibility, Quasi-option value, Uncertainty, Value of information
Discipline
Behavioral Economics | Finance | Strategic Management Policy
Research Areas
Macroeconomics
First Page
1
Last Page
36
Publisher
SMU Economics and Statistics Working Paper Series, No. 04-2011
City or Country
Singapore
Citation
FUJII, Tomoki and ISHIKAWA, Ryuichiro.
Quasi-option Value under Strategic Interactions. (2011). 1-36.
Available at: https://ink.library.smu.edu.sg/soe_research/1261
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Comments
Published in Resource and Energy Economics, 2012, https://doi.org/10.1016/j.reseneeco.2011.09.002