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Real options refer to the investment, entry, exit and other strategic decisions of the firm that share three important characteristics: they are irreversible, they are made under uncertainty, and their timing is chosen by the firm. The term `real options' was introduced in 1977 by Stewart Myers in his paper `Determinants of corporate borrowing' that related risky debt holdings to the future investment policy of the firm. The literature on real options has since been active and growing with seminal works by Brennan and Schwartz (1985) on the valuation and optimal timing of the natural resource investments; McDonald and Siegel (1986) on general approach to investment timing and scrapping; Margrabe (1978) on the asset exchange options; Fudenberg and Tirole (1985) on the preemption and equilibrium in the technology adoption games; Pindyck (1988) on capacity choice, and Kulatilaka and Perotti (1998) on strategic growth options under imperfect competition. In the 1990's and 2000's, a number of classical textbooks in real options appeared in print: Dixit and Pindyck (1994), Trigeorgis (1996), Amram and Kulatilaka (1998), and Vollert (2003). In its development the real options literature combines the option pricing framework introduced in Black and Scholes (1973) and Merton (1973) with the research in the specific fields of economics and finance such as capital budgeting and investment policy, corporate debt and agency problems, mergers & acquisitions or game theory. The present work illustrates the application of the real options approach to three economic areas: strategic competition, mergers & acquisitions and international trade. The first chapter discusses the optimal timing of the technology adoption, entry and merger decisions in the industry producing a vertically differentiated product. I solve the model for the monopoly, duopoly and merger (which is equivalent to a monopoly with two products) and outline the equilibrium strategies of the Incumbent and the Entrant.
Do financial derivatives enhance or impede innovation? We aim to answer this question by examining the relationship between equity options markets and standard measures of firm innovation. Our baseline results show that firms with more options trading activity generate more patents and patent citations per dollar of R&D invested. We then investigate how more active options markets affect firms' innovation strategy. Our results suggest that firms with greater trading activity pursue a more creative, diverse and risky innovation strategy. We discuss potential underlying mechanisms and show that options appear to mitigate managerial career concerns that would induce managers to take actions that boost short-term performance measures. Finally, using several econometric specifications that try to account for the potential endogeneity of options trading, we argue that the positive effect of options trading on firm innovation is causal.
What accounts for Albrecht Ritschl's profound effect on modern theology? Philip Hefner proposed that he so energetically brought together in his work the elements of his generation, that all theology now stands on his shoulders. Many theologians have attacked Ritschl's ideas, others vigorously defend him, but all must confront him. The essays presented here will enable students and scholars to experience the force of Ritschl's writing for themselves. Ritschl was born in 1822 into the intellectual, social, and ecclesiastical elite of Berlin. After finishing his studies at the University of Tuebingen, he taught at Bonn for eighteen years and at Goettingen for twenty-five. Hefner shows that Ritschl spoke a word to his own age that was so appropriate and so in resonance with his contemporaries in Germany that despite its weaknesses it became the dominant theology of his generation. Ritschl's impact can be traced to three major factors: forceful statement of Christian faith, positive link to tradition, and scientific method. He exhibited a remarkable combination of scholarly integrity and devotion to the Christian life, as seen in his ten-year study of pietism - a movement he opposed. His theology also contributed to much that followed, including historical-critical studies and dialectical theology. These essays offer a balanced sample of Ritschl's thinking. In the Prolegomena to 'The History of Pietism' he establishes his method of studying different confessions on the basis of Christian lifestyle. Theology and Metaphysics offers his celebrated rejection of metaphysics in favor of a christocentric approach. Instruction in the Christian Religion, the writing that won for Ritschl his popularity among students, sets forth his specific doctrinal beliefs. Today's students will discover that Ritschl is both an intriguing historical figure and a thinker worth grappling with. These essays, along with Philip Hefner's extensive introduction, provide needed material for a reevaluation of Ritschl and of nineteenth century theology.
This book seeks to answer “why, when and how are real options used in strategic technology venturing?” This work tests for the role of real options in decision making involving three types of firms in decreasing order of technology-dependence – technology-driven (TD) (where the profit is fully dependent on new technology creation and leveraging), technology-based (TB) (where the profit is enabled and supported by technology) and technology-neutral (TN) (where the profit is almost independent of technology). It also deals with strategic and non-strategic types of decisions driven by real options. This analysis shows that an environment presenting co-opetitive (simultaneous competition and collaboration) conditions triggers the use of real options (why), that serve to transform the position, posture and propensity of businesses to innovate and thus they co-evolve (when) into more effective and efficient forms of businesses (co-specialization) (how). The authors demonstrate that embracing risk and uncertainty can increase levels and probability of new venture formation. However, their simulation also shows that it should be adapted to the risk profile of the firm and that timing is also a factor to be considered. Although engaging the concepts of real options, this analysis does not focus on a specific investment valuation methodology, but highlights the relationship between knowledge and risk and rather addresses the management of mindsets, as moving towards a systematic conceptualization of real options represents a different paradigm in decision making.
Ellen Roemer analyzes the flexibility trade-off in buyer-seller relationships. She investigates how relationships should be managed when there is behavioral and environmental uncertainty.
The Economics of Land Use brings together the most significant journal essays in key areas of contemporary agricultural, food and resource economics and land use policy. The editors provide a state-of-the-art overview of the topic and access to the economic literature that has shaped contemporary perspectives on land use analysis and policy.