Ebook: Investment under Uncertainty

Cover; Title; Copyright; Dedication; Contents; Preface; Part I. Introduction; 1 A New View of Investment; 1 The Orthodox Theory; 2 The Option Approach; 3 Irreversibility and the Ability to Wait; 4 An Overview of the Book; 5 Noneconomic Applications; 2 Developing the Concepts Through Simple Examples; 1 Price Uncertainty Lasting Two Periods; 2 Extending the Example to Three Periods; 3 Uncertainty over Cost; 4 Uncertainty over Interest Rates; 5 Scale versus Flexibility; 6 Guide to the Literature; Part II. Mathematical Background; 3 Stochastic Processes and Ito's Lemma; 1 Stochastic Processes.;How should firms decide whether and when to invest in new capital equipment, additions to their workforce, or the development of new products? Why have traditional economic models of investment failed to explain the behavior of investment spending in the United States and other countries? In this book, Avinash Dixit and Robert Pindyck provide the first detailed exposition of a new theoretical approach to the capital investment decisions of firms, stressing the irreversibility of most investment decisions, and the ongoing uncertainty of the economic environment in which these decisions are m.