IDEAS home Printed from https://ideas.repec.org/a/iec/inveco/v29y2005i3p625-630.html
   My bibliography  Save this article

Real options and the Jorgensonian user cost of capital

Author

Listed:
  • Oscar Gutiérrez

    (Centro Politécnico Superior Universidad de Zaragoza)

Abstract

Dixit and Pindyck (1994) claim that the Jorgensonian rule of investment (Jorgenson, 1963) does not hold in uncertain settings. This note shows that the validity of that claim depends crucially on the particular process chosen to describe the economic uncertainty. In fact, the Jorgensonian rule of investment holds in other real options models.

Suggested Citation

  • Oscar Gutiérrez, 2005. "Real options and the Jorgensonian user cost of capital," Investigaciones Economicas, Fundación SEPI, vol. 29(3), pages 625-630, September.
    • Handle: RePEc:iec:inveco:v:29:y:2005:i:3:p:625-630
    as

    Download full text from publisher

    File URL: https://www.fundacionsepi.es/investigacion/revistas/paperArchive/Sep2005/v29i3a7.pdf
    File Function: Full text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Andrew B. Abel & Janice C. Eberly, 1996. "Optimal Investment with Costly Reversibility," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 63(4), pages 581-593.
    2. Svetlana Boyarchenko, 2004. "Irreversible Decisions and Record-Setting News Principles," American Economic Review, American Economic Association, vol. 94(3), pages 557-568, June.
    3. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    4. 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.
    5. Heston, Steven L, 1993. "Invisible Parameters in Option Prices," Journal of Finance, American Finance Association, vol. 48(3), pages 933-947, July.
    6. Peter Carr & Helyette Geman, 2002. "The Fine Structure of Asset Returns: An Empirical Investigation," The Journal of Business, University of Chicago Press, vol. 75(2), pages 305-332, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Frank Riedel & Xia Su, 2011. "On irreversible investment," Finance and Stochastics, Springer, vol. 15(4), pages 607-633, December.
    2. Hervé Roche, 2022. "The implications of tax loss carryforwards on investment policy," Mathematics and Financial Economics, Springer, volume 16, number 6, December.
    3. N. Bloom, 2016. "Fluctuations in uncertainty," Voprosy Ekonomiki, NP Voprosy Ekonomiki, issue 4.
    4. Tsekrekos, Andrianos E., 2010. "The effect of mean reversion on entry and exit decisions under uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 34(4), pages 725-742, April.
    5. José Azevedo‐Pereira & Gualter Couto & Cláudia Nunes, 2010. "Optimal timing of relocation," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 6(2), pages 143-163, April.
    6. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.
    7. Burkhard Raunig & Johann Scharler & Friedrich Sindermann, 2017. "Do Banks Lend Less in Uncertain Times?," Economica, London School of Economics and Political Science, vol. 84(336), pages 682-711, October.
    8. Jean-Paul Décamps & Thomas Mariotti & Stéphane Villeneuve, 2006. "Irreversible investment in alternative projects," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 28(2), pages 425-448, June.
    9. Luis Alvarez & Teppo Rakkolainen, 2010. "Investment timing in presence of downside risk: a certainty equivalent characterization," Annals of Finance, Springer, vol. 6(3), pages 317-333, July.
    10. Nicholas Bloom & John Van Reenen, 2002. "Patents, Real Options and Firm Performance," Economic Journal, Royal Economic Society, vol. 112(478), pages 97-116, March.
    11. Nick Bloom, 2007. "Uncertainty and the Dynamics of R&D," American Economic Review, American Economic Association, vol. 97(2), pages 250-255, May.
    12. Huberts, Nick F.D. & Rossi Silveira, Rafael, 2023. "How economic depreciation shapes the relationship of uncertainty with investments’ size & timing," International Journal of Production Economics, Elsevier, vol. 260(C).
    13. Suresh M. Sundaresan, 2000. "Continuous‐Time Methods in Finance: A Review and an Assessment," Journal of Finance, American Finance Association, vol. 55(4), pages 1569-1622, August.
    14. Ferrari, Giorgio & Salminen, Paavo, 2016. "Irreversible Investment under Lévy Uncertainty: an Equation for the Optimal Boundary," Center for Mathematical Economics Working Papers 530, Center for Mathematical Economics, Bielefeld University.
    15. Hanno Dihle, 2015. "Real Options in a Ramsey style Growth Model," Discussion Paper Series 32, Department of International Economic Policy, University of Freiburg, revised Dec 2015.
    16. Ian Wright, 2015. "Firm Investment and the Term Structure of Uncertainty," Discussion Papers 15-014, Stanford Institute for Economic Policy Research.
    17. Badertscher, Brad & Shroff, Nemit & White, Hal D., 2013. "Externalities of public firm presence: Evidence from private firms' investment decisions," Journal of Financial Economics, Elsevier, vol. 109(3), pages 682-706.
    18. Burkhard Raunig, 2019. "Background Indicators," Econometrics, MDPI, vol. 7(2), pages 1-14, May.
    19. Davis, Graham A. & Cairns, Robert D., 2017. "The odd notion of “reversible investment”," Journal of Banking & Finance, Elsevier, vol. 81(C), pages 172-180.
    20. De Angelis, Tiziano & Ferrari, Giorgio, 2014. "A stochastic partially reversible investment problem on a finite time-horizon: Free-boundary analysis," Stochastic Processes and their Applications, Elsevier, vol. 124(12), pages 4080-4119.

    More about this item

    Keywords

    Real options; user cost of capital; free-boundary; gamma process;
    All these keywords.

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iec:inveco:v:29:y:2005:i:3:p:625-630. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Isabel Sánchez-Seco (email available below). General contact details of provider: https://www.fundacionsepi.es/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.