IDEAS home Printed from https://ideas.repec.org/p/hal/journl/hal-00576375.html
   My bibliography  Save this paper

The Effect of Time-to-Build on Strategic Investment under Uncertainty

Author

Listed:
  • Gonçalo Pacheco-De-Almeida

    (Stern school of business - NYU - New York University [New York] - NYU - NYU System)

  • Peter Zemsky

    (INSEAD - Institut Européen d'administration des Affaires)

Abstract

We show that time-to-build, which creates a lag between the decision to invest and production, is an important element of industry structure. We study a multiperiod investment game where there is demand uncertainty. Adding time-to-build to the model alters the classic tradeoff between making strategic commitments and exploiting the option to wait. Furthermore, time-to-build gives rise to novel equilibria in which firms invest incrementally, which contrasts with most prior work on multiperiod investment games in which firms invest only once. We show how time-to-build affects firm heterogeneity, investment timing, the option value of waiting, the evolution of prices, and social welfare.

Suggested Citation

  • Gonçalo Pacheco-De-Almeida & Peter Zemsky, 2003. "The Effect of Time-to-Build on Strategic Investment under Uncertainty," Post-Print hal-00576375, HAL.
    • Handle: RePEc:hal:journl:hal-00576375
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lukach, R. & Kort, P.M. & Plasmans, J.E.J., 2007. "Strategic R&D with Knowledge Spillovers and Endogenous Time to Complete," Discussion Paper 2007-38, Tilburg University, Center for Economic Research.
    2. Genc, Talat S., 2017. "The impact of lead time on capital investments," Journal of Economic Dynamics and Control, Elsevier, vol. 82(C), pages 142-164.
    3. Li, Xishu & Zuidwijk, Rob & de Koster, René & Sethi, Suresh, 2023. "Time for upgrades? In time for consumers and competition," International Journal of Production Economics, Elsevier, vol. 256(C).
    4. Robert Salomon & Xavier Martin, 2008. "Learning, Knowledge Transfer, and Technology Implementation Performance: A Study of Time-to-Build in the Global Semiconductor Industry," Management Science, INFORMS, vol. 54(7), pages 1266-1280, July.
    5. Jyh-Bang Jou & Tan (Charlene) Lee, 2011. "Mutually exclusive investment with technical uncertainty," Applied Economics, Taylor & Francis Journals, vol. 43(30), pages 4723-4728.
    6. Aïd, René & Federico, Salvatore & Pham, Huyên & Villeneuve, Bertrand, 2015. "Explicit investment rules with time-to-build and uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 51(C), pages 240-256.
    7. Dumortier, Jerome & Kauffman, Nathan & Hayes, Dermot J., 2017. "Production and spatial distribution of switchgrass and miscanthus in the United States under uncertainty and sunk cost," Energy Economics, Elsevier, vol. 67(C), pages 300-314.
    8. Moez Souissi & Pierre Lasserre, 2007. "It Takes Two to Tango.. La fusion : exercice de deux options réelles," Economie & Prévision, La Documentation Française, vol. 0(2), pages 51-65.
    9. Chen, Chia-Hui & Ishida, Junichiro & Mukherjee, Arijit, 2023. "Pioneer, early follower or late entrant: Entry dynamics with learning and market competition," European Economic Review, Elsevier, vol. 152(C).
    10. Taschini, Luca, 2021. "Flexibility premium of emissions permits," Journal of Economic Dynamics and Control, Elsevier, vol. 126(C).
    11. Manish Popli & Ashutosh Sinha, 2014. "Determinants of early movers in cross-border merger and acquisition wave in an emerging market: A study of Indian firms," Asia Pacific Journal of Management, Springer, vol. 31(4), pages 1075-1099, December.
    12. Kuangyuan Zhang & Richard Olawoyin & Antonio Nieto & Andrew N. Kleit, 2018. "Risk of commodity price, production cost and time to build in resource economics," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 20(6), pages 2521-2544, December.
    13. Jeon, Haejun, 2021. "Investment timing and capacity decisions with time-to-build in a duopoly market," Journal of Economic Dynamics and Control, Elsevier, vol. 122(C).
    14. Fei Shi, 2008. "Endogenous Timing with Demand Uncertainty," TWI Research Paper Series 30, Thurgauer Wirtschaftsinstitut, Universität Konstanz.
    15. Ching-Hung Chang & Qingqing Wu, 2021. "Board Networks and Corporate Innovation," Management Science, INFORMS, vol. 67(6), pages 3618-3654, June.
    16. Olubanjo Michael Adetunji & Akintola Amos Owolabi, 2016. "Valuation of Interacting Time-to-Build and Growth Real Options in Infrastructure Investments," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 8(12), pages 202-215, December.
    17. Haejun Jeon, 2023. "Time-to-build and capacity expansion," Annals of Operations Research, Springer, vol. 328(2), pages 1461-1494, September.
    18. Fredrik Armerin & Han-Suck Song, 2021. "A framework for modelling cash flow lags," SN Business & Economics, Springer, vol. 1(10), pages 1-13, October.

    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:hal:journl:hal-00576375. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    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.