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Strategic real options

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  • Kolb, Aaron M.

Abstract

I study hidden investment in quality in a dynamic persuasion game. A seller, such as a project manager or startup company, controls an asset and wants to convince a potential buyer, such as an acquiring company or a regulator, that it has high quality. The buyer observes exogenous news with quality-dependent drift and holds a call option on the asset; the seller is privately informed about quality and can wait (at a flow cost), upgrade (at a fixed cost) or exit the market.

Suggested Citation

  • Kolb, Aaron M., 2019. "Strategic real options," Journal of Economic Theory, Elsevier, vol. 183(C), pages 344-383.
    • Handle: RePEc:eee:jetheo:v:183:y:2019:i:c:p:344-383
    DOI: 10.1016/j.jet.2019.05.008
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    Citations

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    Cited by:

    1. Gonzalo Cisternas & Aaron Kolb, 2020. "Signaling with Private Monitoring," Papers 2007.15514, arXiv.org.
    2. Joyee Deb & Aniko Oery & Kevin R. Williams, 2018. "Aiming for the Goal: Contribution Dynamics of Crowdfunding," Cowles Foundation Discussion Papers 2149R2, Cowles Foundation for Research in Economics, Yale University, revised Feb 2023.
    3. Lang, Ruitian, 2019. "Try before you buy: A theory of dynamic information acquisition," Journal of Economic Theory, Elsevier, vol. 183(C), pages 1057-1093.
    4. Raphael Boleslavsky, 2023. "Waiting for Fake News," Papers 2304.04053, arXiv.org, revised Apr 2023.

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    More about this item

    Keywords

    Real options; Persuasion games; Hidden investment; Continuous time; Resetting barrier; Skew Brownian motion;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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