Investment under uncertain conditions

Author: Avinash Dixit
Publisher:
Publication Date: 2002-11-01
Features: Should firms invest in new capital equipment, expand work teams, or develop new products? Why have traditional economic models failed to explain investment spending activities in the United States and other countries? In this book, Avinash Dixit and Robert Pindyck present a new theory of corporate capital investment decisions, emphasizing the irreversibility of most investment decisions and the uncertainty in the economic environment when making these decisions. Using this approach, they address the aforementioned questions about investment decisions and investment spending behavior, as well as other important issues. This new approach to investment recognizes the option value of waiting for better (but never fully complete) information. It draws an analogy with financial market option theory, giving it a richer dynamic framework than traditional investment theory. The authors articulate this new theory in a clear and systematic manner and also consolidate, synthesize, and expand various research areas that have emerged from this theory. The book highlights the importance of understanding corporate investment behavior. It explains the impact of this theory on industrial dynamics equilibrium in investment and government policy, as well as how the theory can be applied to specific industries and broader commercial issues.