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A Comment on “The effectiveness of carbon pricing: The role of diversification in a firm’s investment decision”

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  • Armerin, Fredrik

Abstract

We show that the set of parameter values satisfying the constraints, needed in order to make the stopping rule used in the extended model in Compernolle et al. (2022) an optimal one, is empty. Using the stopping rule in their paper will result in a strictly smaller stopping time than the optimal stopping time. It follows that the stopping rule used in Compernolle et al. (2022) will result in a lower bound of the expected time until an investment is done.

Suggested Citation

  • Armerin, Fredrik, 2024. "A Comment on “The effectiveness of carbon pricing: The role of diversification in a firm’s investment decision”," Energy Economics, Elsevier, vol. 132(C).
    • Handle: RePEc:eee:eneeco:v:132:y:2024:i:c:s0140988324001956
    DOI: 10.1016/j.eneco.2024.107487
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    References listed on IDEAS

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    1. Yaozhong Hu & Bernt Øksendal, 1998. "Optimal time to invest when the price processes are geometric Brownian motions," Finance and Stochastics, Springer, vol. 2(3), pages 295-310.
    2. Robert McDonald & Daniel Siegel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(4), pages 707-727.
    3. Christensen, Sören & Irle, Albrecht, 2020. "The monotone case approach for the solution of certain multidimensional optimal stopping problems," Stochastic Processes and their Applications, Elsevier, vol. 130(4), pages 1972-1993.
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    More about this item

    Keywords

    Optimal investment timing; Real options; Irreversible investments;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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