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| Author: | Bellalah, M. |
| Title: | Irreversibility, sunk costs and investment under incomplete information |
| Journal: | R. and D. Management
2001 : VOL. 31:2, p. 115-126 |
| Index terms: | SUNK COSTS INVESTMENT INFORMATION |
| Language: | eng |
| Abstract: | This paper presents a framework for the valuation of investment opportunities accounting for information costs regarding the project cash-flows. The authors develop some basic models of irreversible investment to illustrate the option-like characteristics of investment opportunities under incomplete information. The authors show how optimal investment rules can be obtained using option pricing theory under incomplete information. It is possible to value real options and investment decisions using the authors' approach in a context of incomplete information. Simulations are provided to illustrate the authors' main results. |
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