A real options study on cook stove CDM project under emission allowance price uncertainty

South Korea is one of the countries that have been actively involved in reducing greenhouse gas emissions and global climate action as a party to the Paris Agreement. As the national emissions reduction target has been getting reinforced, an increasing number of South Korean firms have been participating into the Clean Development Mechanism (CDM) projects to secure CER credits, one of which is the ‘improved energy-efficient cook-stove distribution project’ in developing countries. The purpose of this paper is to develop a real options model to analyze investment decisions on cook-stove distribution CDM project in Myanmar, where we estimate the optimal threshold CER price that makes the investment economically feasible. We also analyze the sensitivity of the threshold price across the investment parameters. The results show that our project was economically feasible at the time the project was launched, as the KOC prices were generally higher than the investment threshold price. The sharp decline of the KOC prices in 2020, however, deteriorated the economic feasibility of the project. The results suggest that various risk factors should be incorporated before making investment decisions.     

Reference-dependent preferences and probability judgments

This paper provides empirical evidence that probability judgments help explain a reference-dependent preference. It explains using the data for Tokyo Taxi drivers, which includes the respondents about psychological questions. Probability judgments based on a dual process to cognition means judgments and calculations of the probability when they determine something under uncertainty. It weakens the assumption that people have the same rationality. We permit the difference between cognition to rationality and probability judgments. These probability judgments relate to reference points and drivers' personalities and intuition, which influence decision-making and can explain several reference dependences. The difference of cognition to rationality also determines their reference dependence type. It uses Rational Experienced Inventory as the index of cognition to rationality. Frequentist type has different target variables with case type, subjective type, and fortune type. Each probability judgment type has each target as the reference point. Probability judgment types explain the type of cognition to rationality. This explains the endogeneity of reference dependence.     

Detecting overproduction: Evidence from inventory write-down

We use inventory write-downs to differentiate opportunistic and non-opportunistic overproduction measures. We posit that non-opportunistic overproduction is positively associated with future write-downs because overproduction generally leads to excess inventory, while opportunistic overproduction (to inflate earnings) is negatively associated with write-downs because write-downs decrease earnings. We find that change-based proxies (deviations from past behaviour) are positively associated with the likelihood of future write-downs, whereas residual-based proxies (deviations from industry norms) are negatively associated with this likelihood, suggesting that the former (latter) primarily capture non-opportunistic (opportunistic) overproduction. Our study highlights the importance of using appropriate overproduction measures for each research setting.