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Author: | Grenadier, S.R. Wang, N. |
Title: | Investment under uncertainty and time-inconsistent preferences |
Journal: | Journal of Financial Economics
2007 : APR, VOL. 84:1, p. 2-39 |
Index terms: | finance investments models |
Freeterms: | hyperbolic discounting time inconsistency real options |
Language: | eng |
Abstract: | There is substantial evidence that agents are impatient about choices in the short term but are patient when choosing btw. long-term alternatives. This paper extends the real options framework to model the investment-timing (here as: inv-tmg.) decisions of entrepreneurs with time-inconsistent (as: tm-inct.) preferences. The impact on inv-tmg. depends on such factors as whether entrepreneurs are sophisticated or naive in their expectations regarding their future tm-inct. behaviour, and whether the payoff from investment occurs all at once or over time. The model is extended to a competitive equilibrium case. |
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