Irreversible investment and capacity choice with Bayesian learning |
| |
Affiliation: | 1. School of Economics and Management, Shihezi University, Xinjiang, China;2. School of Economics and Business Administration, Chongqing University, Chongqing, China |
| |
Abstract: | This paper incorporates information incompleteness into the standard capacity choice model. The firm dynamically updates its belief about the expected growth rate based on the realization of demand shocks. First, the firm’s expansion decision becomes more conservative in the dynamic updating case. Moreover, a myopic firm always overestimates the marginal value of capital but underestimates firm value. When we decompose the firm value into the value of assets in place and growth opportunities, dynamic learning significantly increases the value of growth opportunities rather than that of assets in place. Finally, the implications for the user cost of capital is also examined. |
| |
Keywords: | Irreversible investment Capacity choice Incomplete information Dynamic learning |
本文献已被 ScienceDirect 等数据库收录! |
|