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The right to choose: political decisions and environmental investments

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  • David Mueller

Abstract

Incorporating real option modelling into the valuation of ecological investments and decisions has become widely accepted in recent years. This welcome broadening suffers from one limitation as all papers assume that the decision-maker knows which option he or she has at his or her disposal: an investment option or an abandonment option. Environmental related investment decisions depend very often on political decisions which will be made on a specific date in the future and may change the general direction of environmental policy. From the investor's viewpoint, it is not clear how this decision will affect his investment, as it is possible that he must invest or disinvest after the political decision. Therefore, the aim of this paper is twofold: first, the structure of such investment decisions will be discussed, and second, a chooser option model will be presented and analysed for the first time.

Suggested Citation

  • David Mueller, 2016. "The right to choose: political decisions and environmental investments," International Journal of Innovation and Sustainable Development, Inderscience Enterprises Ltd, vol. 10(3), pages 219-236.
    • Handle: RePEc:ids:ijisde:v:10:y:2016:i:3:p:219-236
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    References listed on IDEAS

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