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The net present value method versus the option value of waiting: A note on Farzin, Huisman and Kort (1998) by Ulrich Doraszelski is a Economics, Econometrics and Finance article available to read on EtoBox.

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Using the tools of real-options theory, Farzin, Huisman and Kort (1998) investigate the optimal timing of technology adoption in a model in which there is ongoing technological progress and the "rm's investment decision is irreversible. When the "rm can switch technologies n( R times, Farzin et al. (1998) obtain the surprising result that the criterion for adopting a new technology derived from real-options theory coincides with the net present value criterion for all but the last switch. This note points out a mistake in Farzin et al.'s (1998) derivations that leads to the above result. We show that, compared to the net present value approach, the "rm will defer the adoption of a new technology when it takes the option value of waiting into account.

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Author

Ulrich Doraszelski

Publisher

Elsevier Science; Elsevier ; Elsevier BV (ISSN 0165-1889)

Published

2001

Language

EN

Field

Economics, Econometrics and Finance (Social Sciences)