using real option analysis for highly uncertain technology investments the case of wind energy technology this study examines the feasibility of using a theoretical model and empirical analysis methods to value renewable energy re investment from perspective of real option analysis roa based on use of a roa approach the re value is evaluated with respect to its ability to conform to the main sensitivity analysis of re investment as well as an empirical method devised to value re investment by using actual data the economic intuitiveness underlying the decision making process for re investment is elucidated while empirical analysis is performed to demonstrate the effectiveness of the options value embedded in current development planning in taiwan for wind energy in addition to revealing the advantages of re development when considering real option analytical results indicate that roa is a highly effective means of quantifying how investment planning uncertainty including managerial flexibility influences re development besides evaluating the value of current re investment this study demonstrates that results of the theoretical model empirical analysis and sensitivity analysis correlate well with each other restated the value of developing re increases when increasing the underlying price time to maturity risk free rate and volatility conversely the value of developing re decreases when increasing the exercise price

evidence of under investment in energy r d in the united states and the impact of federal policy investments in energy technology research and development r d and in associated human and institutional capacity are fundamental to our ability to respond to changing economic and environmental needs this paper uses data on r d investments and patent records to examine the relationship between expenditures on r d and innovation with a particular focus on the energy sector we observe that r d spending and patents both overall and in the energy sector have been highly correlated over the past two decades in the us in addition we observe that the r d intensity of the us energy sector is extremely low when compared to other sectors we argue that the data illustrates the critical role of public policy as evidenced by the impact of recent technology transfer related legislation on the total number and on the ownership of innovations resulting from federally sponsored r d we conclude that there has been a significant and sustained pattern of under investment in the us energy sector and that recent declines in energy r d exacerbate this situation innovation for the us energy infrastructure is also a significant driver of the international energy economy thus the spillover from us under investment detracts from the global capacity to respond to emerging risks such as global warming

optimizing the level of renewable electric r d expenditures using real options analysis abstract one of the primary objectives of the united states federal non hydro renewable electric r d program is to promote the development of technologies that have the potential to provide consumers with stable and secure energy supplies in order to quantify the benefits provided by continued federal renewable electric r d this paper uses real option pricing techniques to estimate the value of renewable electric technologies in the face of uncertain fossil fuel prices within the real options analysis framework the current value of expected future supply from renewable electric technologies net of federal r d expenditures is estimated to be 30 6 billion of this value 86 can be attributed to past federal r d efforts and 14 can be attributed to future federal r d efforts assuming continued federal r d funding at 300 million yr in addition real options analysis shows that the value of renewable electric technologies increases as current and future r d funding levels increase this indicates that the current level of federal renewable electric r d funding is sub optimal

the experience curve option value and the energy paradox abstract this paper develops a model to explain the energy paradox the inclination of households and firms to require very high internal rates of return in order to make energy saving investments the model abstracts from many features of such investments to focus on their irreversibility the uncertainty of their future payoff streams and the investor s anticipation of future technological advance in this setting the decision to invest in energy saving technology can be delayed providing option value in addition delay allows the potential investor to cash in on future experience curve effects with the passage of time firms gain practical knowledge in producing and installing the energy saving technology enabling them to reduce the technology s up front cost per unit of energy saved we incorporate these fundamentals into a stochastic model where the investment s discounted benefits follow geometric brownian motion to demonstrate the model s capabilities we generate simulation results for photovoltaic systems that highlight the experience curve effect as a fundamental reason why households and firms delay making energy saving investments until internal rates of return exceed values of 50 and higher consistent with observations in the economics literature we also explore altruistic motivations for energy conservation and the model s implications for both additionality and the design of energy conservation policy

internal capital markets and the competition for corporate resources this article examines the role of corporate headquarters in allocating scarce resources to competing projects in an internal capital market unlike a bank headquarters has control rights that enable it to engage in winner picking the practice of actively shifting funds from one project to another by doing a good job in the winner picking dimension headquarters can create value even when it cannot help at all to relax overall firm wide credit constraints the model implies that internal capital markets may sometimes function more efficiently when headquarters oversees a small and focused set of projects this article analyzes the process by which internal capital markets channel limited resources to different uses inside a company in so doing it seeks to address two related sets of questions first what is the fundamental economic rationale for creating an internal capital market that is under what circumstances can it make sense to combine several technologically distinct projects under one roof and have them seek funding from corporate headquarters as opposed to setting them up as stand alone companies that each raise external financing on their own second given this rationale what is the optimal size and scope of an internal capital market should headquarters be involved in funding a large number of projects or just a few and should these projects be unrelated to one another or in similar lines of business the answers to both sets of questions flow from the insight that in a credit constrained setting where not all positive npv projects can be financed headquarters can create value by actively reallocating scarce funds across projects for example the cash flow generated by one division s activities may be taken and spent on investment in another division where the returns are higher or alternatively one division s assets may be used as collateral to raise financing that is then diverted to the other division simply put individual projects must compete for the scarce funds and headquarters job is to pick the winners and losers in this competition

the effect of business risk on corporate capital structure theory and evidence under corporate and personal taxation we demonstrate that the relation between optimal debt level and business risk is roughly u shaped this result follows from the fact that the tax liability is an option portfolio that is long in the corporate tax option and short in the personal tax option therefore the net effect of a change in business risk on the optimal debt level depends upon the relative magnitudes of the resultant marginal changes in the values of these two options results of empirical tests offer support for the predicted u shaped relationship

a real options valuation of chinese wind energy technologies for power generation do benefits from the feed in tariffs outweigh costs abstract in order to assess the viability of wind energy projects in china this paper takes a real options approach by accounting for flexibility over deployment of the technology in response to a stochastic non renewable energy cost the difference between the latter and the r d enhanced cost of renewable energy operation may be thought of as a benefit from using wind on the other hand the chinese government provides feed in tariffs to encourage further adoption of wind which should be included as a cost this work thus shows that there is substantial options value to china s wind energy program which is bolstered if the cost of carbon dioxide emissions is internalized moreover by varying the rate of feed in tariffs the model may be used to show plausible ranges for the feed in tariffs which could be a useful policy insight furthermore the study hypothesizes that with the likelihood of renewable energy to replace non renewable energy wind power in china can potentially reduce co2 emissions by approximately 6 4 by 2020 comparing to the 2005 level and highlights the significant role of wind power in china s emission targets and energy security this is a relevant paper especially given the importance of a sustainable energy transition for china more generally using the real options approach from a policy perspective could provide insights about the viability of renewable energy programs and robustness of feed in tariffs rates

savings in transnational households a field experiment among migrants from el salvador abstract we implemented a randomized field experiment that tested ways to stimulate migrants savings in their origin country we find that migrants value opportunities to exert greater control over financial activities in their home countries we offered u s based migrants bank accounts in el salvador randomly varying migrant control over el salvador based savings by offering different accounts across treatments migrants offered the greatest degree of control accumulated the most savings impacts likely represent increases in total savings there is no evidence that savings increases were simply reallocated from other savings mechanisms enhanced control over home country savings does not affect remittances sent home

what should we expect from innovation a model based assessment of the environmental and mitigation cost implications of climate related r d abstract this paper addresses two basic issues related to technological innovation and climate stabilization objectives can innovation policies be effective in stabilizing climate to what extent can innovation policies complement carbon pricing taxes or permit trading and improve the economic efficiency of a mitigation policy package to answer these questions we use an integrated assessment model with multiple externalities and an endogenous representation of the technical progress in the energy sector we evaluate a range of innovation policies both as stand alone and in combination with other mitigation policies our analysis indicates that innovation policies alone are unlikely to stabilize global concentration and temperature as for the benefits of combining climate and innovation policies we find efficiency gains of 10 6 usd trillions in net present value terms for a stringent climate policy and 30 3 usd trillions for a milder one however such gains are reduced when more plausible sub optimal global innovation policy arrangements are considered

renewable energy policy evaluation using real option model the case of taiwan abstract this study presents a policy benefit evaluation model that integrates cost efficiency curve information on renewable power generation technologies into real options analysis roa methods the proposed model evaluates quantitatively the policy value provided by developing renewable energy re in the face of uncertain fossil fuel prices and re policy related factors the economic intuition underlying the policy making process is elucidated while empirical analysis illustrates the option value embedded in the current development policy in taiwan for wind power in addition to revealing the benefits that re development provides when considering real options analytical results indicate that roa is a highly effective means of quantifying how policy planning uncertainty including managerial flexibility influences re development in addition to assessing the policy value of current re development policy this study also compares policy values in terms of internalized external costs and varying feed in tariff fit simulation results demonstrate that the re development policy with internalized co2 emission costs is appropriate policy planning from sustainability point of view furthermore relationship between varying fit and policy values can be shown quantitatively and appropriate fit level could be determined accordingly

flexible investment under uncertainty in smart distribution networks with demand side response assessment framework and practical implementation abstract classical deterministic models applied to investment valuation in distribution networks may not be adequate for a range of real world decision making scenarios as they effectively ignore the uncertainty found in the most important variables driving network planning e g load growth as greater uncertainty is expected from growing distributed energy resources in distribution networks there is an increasing risk of investing in too much or too little network capacity and hence causing the stranding and inefficient use of network assets these costs are then passed on to the end user an alternative emerging solution in the context of smart grid development is to release untapped network capacity through demand side response dsr however to date there is no approach able to quantify the value of smart dsr solutions against conventional asset heavy investments on these premises this paper presents a general real options framework and a novel probabilistic tool for the economic assessment of dsr for smart distribution network planning under uncertainty which allows the modeling and comparison of multiple investment strategies including dsr and capacity reinforcements based on different cost and risk metrics in particular the model provides an explicit quantification of the economic value of dsr against alternative investment strategies through sensitivity analysis it is able to indicate the maximum price payable for dsr service such that dsr remains economically optimal against these alternatives the proposed model thus provides regulators with clear insights for overseeing dsr contractual arrangements further it highlights that differences exist in the economic perspective of the regulated dno business and of customers our proposed model is therefore capable of highlighting instances where a particular investment strategy is favorable to the dno but not to its customers or vice versa and thus aspects of the regulatory framework which may need altering the case study results indicate that dsr can be an economical option to delay or even avoid large irreversible capacity investments thus reducing overall costs for networks and end customers however in order for the value and benefits of dsr to be acknowledged a change in the regulatory framework currently based on deterministic analysis that takes explicit account of uncertainty in planning as suggested by our work is required

energy conservation investment do consumers discount the future correctly we argue that the apparently high discount rates attributed to investors making energy conservation investments are not irrational or the result of some market failure rather they may result from an investor recognizing that many conservation investments entail substantial sunk costs in the presence of these costs and uncertainty over future conservation savings consumers should use a higher hurdle rate for investment than if there were no uncertainty simulations suggest that the hurdle rate should be about four times greater than the standard rate an implication of our model is that tax subsidies for the purchase of conservation capital are likely to be ineffective we discuss alternative policy approaches which are more likely to increase energy efficient investment namely mandatory efficiency standards and energy taxes

valuation of projects for power generation with renewable energy a comparative study based on real regulatory options abstract this comparative study evaluates an investment project on renewable energy based on wind power we have conducted the study in three european union countries denmark finland and portugal we have modelled the main uncertainties that affect this kind of project such as the cost and production of electric power investment costs and consumer price index for each of these countries we have analysed the mechanisms of public support for wind energy we have identified the real options included in the regulatory frameworks of these three countries and assessed how they affect the expanded net present value of the project to this end we have used two different methods of option valuation the monte carlo method and the binomial method we have proved that the obtained results using both methods are quite similar finally we have evaluated the public incentives for wind energy offered in each of these three countries and concluded that in economic terms finland is the country with the strongest support for this kind of energy followed by denmark and in the last place portugal

real options approach to renewable energy investments in mongolia developing nations are seeking alternative energy for electricity and one attractive alternative is renewable energy this research analyzes changing investment environment for renewable energy with real options approach and explores its potential in developing economies through studying the case of mongolia under coal price uncertainty to evaluate comparative attractiveness of either continuing to use coal based infrastructures or switching to renewable energy we formulate social revenue functions for the two environments assuming that renewable energy has lower external costs and coal prices follow geometric brownian motion gbm or geometric mean reverting gmr processes we find the optimal trigger coal prices for switching technologies with some scenarios in electricity price and externality characterize when renewable energy investments become attractive in contrast to conventional wisdom we identify some situations where the value of having more decision opportunities does not exceed that of a now or never decision for switching technologies and welfare losses are incurred the optimal trigger prices are higher in gbm than in gmr and our result raises the possible risks for waiting to switch energy to avoid welfare losses in mongolia the government should increase electricity prices or switch to renewable energy earlier especially when people pay more for the removal of externalities

time to build option value and investment decisions a comment abstract we correct the analysis of the model of time to build in majd and pindyck 1987 journal of financial economics 18 7 27 for the omission of an essential optimality condition our analysis reveals an additional insight long times to build reduce the effects of increased project value volatility i e higher investment thresholds in comparison to standard real option models of investment under uncertainty where investment is instantaneous thus a naive npv rule can sometimes be an appropriate initial guide to investment

creditor rights and debt allocation within multinationals we analyze the optimal debt structure of multinational corporations choosing between centralized or decentralized borrowing we identify how this choice is affected by creditor rights and bankruptcy costs taking into account managerial incentives and coinsurance considerations we find that partially centralized borrowing structures are optimal with either weak or strong creditor rights for intermediate levels of creditor rights fully decentralized centralized borrowing structures are optimal if managers have strong weak empire building tendencies decentralized borrowing is more attractive for companies focussing on short term profitability credits are rather taken in countries with better creditor rights and more efficient insolvency systems

asymmetric information about migrant earnings and remittance flows this paper examine asymmetric information about migrant earnings and its implications for remittance behavior using a sample of indian households with husbands working overseas in qatar on average wives underreport their husbands income and underreporting is more prevalent in households with higher earning migrants the discrepancy in earning reports is strongly correlated with variation in remittances greater underreporting by wives is associated with lower remittances an exchange model of remittances is developed with asymmetric information and costly state verification the optimal remittance contract prescribes a threshold for remittances that invites verification only if unmet the model s predictions closely match our empirical findings

residential bioenergy heating a study of consumer perceptions of improved woodstoves abstract consumers choices play a key role for the development of biomass heating in the residential sector the city of oslo has granted subsidies to households who change to new improved low emission woodstoves the purpose of this study is to expand the knowledge about users experiences and attitudes to residential biomass heating an adapted model of the theory of planned behavior was used to model households inclination to continue using their woodstoves for heating more than 800 questionnaires were collected from households that recently had invested in an improved woodstove the respondents were satisfied with the new woodstoves the respondents also considered themselves competent to use and maintain the stove and few had problems acquiring fuelwood further analyses showed that the intention to continue to use the new woodstove depends on economic benefits heating performance perceived time and effort to operate the stove environmental effects of heating as well as perceived subjective norm the results imply that when marketing a modern technology for bioenergy heating both public authorities and producers should consider issues related to the users perception of subjective norm such as perceived status of using bioenergy or environmental concerns when designing campaigns to promote the use of woodstoves

temporary migration and endogenous risk sharing in village india when people can self insure via migration they may have less need for informal risk sharing at the same time informal insurance may reduce the need to migrate to understand the joint determinat

compound real options valuation of renewable energy projects the case of a wind farm in serbia abstract renewable energy sources have become a very important issue due to environmental and sustainability concerns in addition most renewable energy electricity generation res e projects are characterized by considerable uncertainty and sequential decision making these projects net present value npv is very often close to zero which renders them a good candidate for the application of real options valuation methodology of investment project appraisal this paper examines the real options valuation of a potential onshore wind farm project in serbia the binomial tree model spans a 15 year period consisting of a 2 year investment period and a 13 year operating period the first 12 years of which are protected by feed in tariffs according to local renewable energy regulations the authors examine a multi phased compound nested path dependent real option consisting of mutually exclusive options a sequential option to invest as well as expand repower contract and abandon options volatility which is calculated by means of a monte carlo simulation according to the logarithmic present value returns approach shows predominant sensitivity to the capacity factor simulated with the rescaled weibull s probability distribution the final binomial tree results show that the proposed sequence of options increases project value by transforming higher risk and lower return in the initial discounted cash flow model to lower risk and higher return in the ro model this paper contributes to the existing literature in at least two ways it presents in depth analysis of the real option application to the res e project and provides decision makers with sophisticated tool for improving strategic thinking capital budgeting and decision making processes

a real option model for renewable energy policy evaluation with application to solar pv power generation in china abstract this study proposes a policy evaluation model from the perspective of government and investors the proposed model which integrates american option method and two factor learning curve method can be used to evaluate the unit decision value and save path rate for renewable energy development and examine the existence of balance point of interest several uncertain factors including non renewable energy cost carbon price renewable energy cost and price subsidy are all considered in this model the model has been applied to evaluate the solar photovoltaic pv power generation in china our empirical results show that real option analysis roa is more effective than net present value analysis npv when handling uncertainty under current level of subsidy the government would suffer loss and the investors could benefit so that it is difficult to achieve the balance of interest during the planning period with the reduction of subsidy rate they can achieve the balance of interest

capital budgeting for interrelated projects a real options approach this paper explores the effect of project interrelationships on investment decisions and project values in a real options framework we examine in detail the mutually exclusive case where a firm may invest in the development stage of two projects and then may select only a single project to implement the firm can develop the projects in parallel or in sequence the choice of development policy depends on the relative values of the embedded options for each strategy sequential development is shown to be superior to parallel development when projects have highly correlated values and when they require a large commitment of capital for development are short term in nature and have relatively low volatility we also show that the optimal ordering of sequential projects does not always begin with the most profitable project

unintended consequences energy r d in a deregulated energy market abstract many advanced industrialized nations are substantially reducing their national public and private investments in energy research and development r d driven in part by changes occurring as a result of the deregulation of these nations energy sectors in particular funding for strategic energy r d aimed at developing future energy supply options eg fusion fission clean fossil energy renewable energy has been decreased substantially in both the public and private sectors in many of these nations these trends are now starting to be seen in the united states as it moves towards the deregulation of the nation s utilities the magnitude of the reductions in support for energy r d in the public and private sectors and the shift towards decidedly shorter term r d has profound implications for nations approaching deregulation though utility customers may be short term winners from the deregulation of utilities by paying less for energy a national failure to invest in energy r d is very likely to have long term negative impacts on national energy sectors the economies and environmental wellbeing

reputation and discretion in financial contracting the authors explain the use of legally unenforceable discretionary financial contracts in circumstances where legally enforceable contracts are feasible a discretionary contract allows a contracting party to choose whether or not to honor the contract it is shown that such a contract liquefies reputational capital by permitting it to be depreciated in exchange for the preservation of financial capital and information reusability in financially impaired states in addition discretionary contracts foster the development of reputation this explains discretion among highly confident letters holding company relationships mutual fund contracts bank loan commitments and other financial and nonfinancial contracts copyright 1993 by american economic association

migration and imperfect monitoring implications for intra household allocation studies of the impact of migration on sending households e g dean yang 2004 alejandra c edwards and manuelita ureta 2003 have largely neglected the fact that certain allocations can only be imperfectly monitored when household members are not coresident see ralph chami et al 2003 for an exception in this case allocations can be coordinated only to the extent that they can be verified and household decision making may not be fully cooperative the existence of such behavior among household members would suggest that expanding opportunities for migration will have different effects on expenditure patterns than simply increasing the amount of income received by the household changes in earned income and the potential to earn income will affect bargaining among spouses but noncooperative behavior will have an additional effect on the final distribution of household resources with the

a trade off theory of ownership and capital structure abstract this paper determines the optimal ownership share held by a unit into a second unit when both face a tax bankruptcy trade off full ownership is optimal when the first unit has positive debt because dividends help avoid its default positive debt is in turn optimal when its corporate tax rate exceeds a threshold and or thin capitalization rules place an upper limit on the debt level in the second unit and or the volcker rule bans bailout transfers to the second unit full ownership is no longer optimal only if there is a tax on intercorporate dividend this theory rationalizes observations on multinationals financial conglomerates and family groups

a real options model for renewable energy investment with application to solar photovoltaic power generation in china this paper proposes a real options model for evaluating renewable energy investment by considering uncertain factors such as co2 price non renewable energy cost investment cost and market price of electricity a phase out mechanism is built into the model to reflect the long term changes of subsidy policy we apply the proposed model to empirically evaluate the investment value and optimal timing for solar photovoltaic power generation in china our empirical results show that the current investment environment in china may not be able to attract immediate investment while the development of carbon market helps advance the optimal investment time a sensitivity analysis is conducted to investigate the dynamics of investment value and optimal timing under the changes of unit generating capacity subsidy level market price of electricity co2 price and investment cost it is found that the high investment cost and the volatility of electricity and co2 prices are not conducive to attract immediate investment instead increasing the level of subsidy promoting technological progress and maintaining the stability of market are useful to stimulate investment

evaluation of r d investments in wind power in korea using real option abstract in recent years many countries put an emphasis on the development and deployment of renewable energy to cope with the global environmental crisis such as depletion of fossil energy climate convention to control emissions of greenhouse gases among the various new and renewable energy sources the korean government selected wind power energy as one of the core areas for r d investments in this paper we evaluate the economic value of the investment in wind power energy r d in korea and optimal deployment timing of wind power technology by using the real option approach the real option model adopted in this paper assumes that a decision maker has a compound option to abandon deployment or continue the r d as a result by using empirical data of korea it is found that there exists a considerable amount of positive economic value of investments in wind power energy r d

application of real options valuation for analysing the impact of public r d financing on renewable energy projects a company s perspective abstract this paper contrasts the financial benefit of grants given to research and development projects with the reduction in managerial flexibility they impose which implies a loss in the value of the project to quantify this loss of value real options analysis has been adopted as the most suitable framework to assess and quantify managerial flexibility this idea is illustrated by the case of a research and development project in renewable energy specifically concentrated solar power our results show that the value added by the grants is less than the nominal incentives received as a result of the loss of flexibility for managers they cannot apply certain options such as deferral nor can they abandon the project therefore a break even grant is proposed that equals the financial incentive with the loss of managerial flexibility under this break even point the grant should be rejected this paper will create awareness for both policy makers and private companies regarding a more accurate assessment of grants to research and development funding as well as provide insights to improve grant schemes without increasing the amount of public funds

variable capacity utilization ambient temperature shocks and generation asset valuation this paper discusses generation asset valuation in a framework where capital utilization decisions are endogenous we use real options approach for valuation of natural gas fueled turbines capital utilization choices that we explore include turning on off the unit operating the unit at increased firing temperatures overfiring and conducting preventive maintenance overfiring provides capacity enhancement which comes at the expense of reduced maintenance interval and increased costs of part replacement we consider the costs and benefits of overfiring in attempt to maximize the asset value by optimally exercising the overfire option in addition to stochastic processes governing prices we incorporate an exogenous productivity shock ambient temperature we consider how variation in ambient temperature affects the asset value through its effect on gas turbine s productivity

enhancing renewable and sustainable energy development based on an options based policy evaluation framework case study of wind energy technology in taiwan global warming and climate change have shifted the focus of industrial development towards low carbon renewable energy re as evidence by global efforts to develop re based sustainable energy policies however the generally cost ineffective nature of re investments explains continued governmental subsidies and draft assistance measures to encourage related industrial development reduce research and development r d costs and increase innovativeness besides measures to accelerate supply and reduced demand for energy sustainable energy policies must enact thoroughly planned legal and regulatory mechanisms notable examples of establishing a legal basis for a low carbon society in taiwan include the energy management act renewable energy development bill greenhouse gas reduction act draft and energy tax act draft however such legislative efforts occasionally conflict or compete with each other warranting further integration additionally re technologies are characterized by high r d costs long term planning and high investment risks therefore based on global trends in wind power development and related policy planning this study analyzes the feasibility of implementing management strategies in the development process and the correlations between such strategies additionally the achievements polices functions mechanisms promotion measures and future plans for related renewable and sustainable energy laws in taiwan is thoroughly reviewed an options based policy evaluation framework is also constructed based on governmental administrative considerations moreover the characteristics of options that lead to unforeseen circumstances during the planning of re development policies are discussed allowing us to derive real time response measures with a decision making value results of this study provide a valuable reference for governmental efforts to evaluate the merits and limitations of related policies concisely ultimately facilitating the formulation of re development policies

optimal design of subsidy to stimulate renewable energy investments the case of china this paper proposes a real options model for estimating the optimal subsidy for renewable energy power generation project by using stochastic process to describe the market price of electricity co2 price and investment cost two indicators i e project value and threshold value are used to derive the optimal subsidy the least squares monte carlo simulation method is used to solve the model the proposed model is used to empirically evaluate the optimal level of subsidy for solar photovoltaic power generation in china the results show that carbon emission trading scheme helps reduce subsidy unit generating capacity market price of electricity co2 price and the volatility of investment cost are negatively related with subsidy whereas investment cost and the volatility of electricity price and co2 price are positively related with subsidy it is suggested that chinese governments take some measures e g promoting technological progress establishing a nationwide carbon emission trading market promoting the competition in renewable energy industry as well as maintaining the stability of co2 price and electricity price to reduce the required subsidy

bankruptcy limited liability and the modigliani miller theorem this paper examines the validity of the modigliani miller theorem in the presence of bankruptcy the theorem asserts that the value of a firm and the set of return patterns that the capital markets offer to private investors are independent of firm debt equity ratios the usual proof of the theorem is based on the presumption that in perfect capital markets borrowing by firms and borrowing by individuals can be perfect substitutes it is unclear whether this presumption is valid when there is a positive probability that either the firm or the individual who borrows to invest in the firm goes bankrupt on the one hand joseph stiglitz 1969 and robert merton have argued that the modigliani miller theorem remains valid even with bankruptcy if agents who borrow to invest in a firm can limit their liability to the amount of collateral they put up on the other hand vernon smith 1972 has argued that a margin loan which is secured by a pure equity collateral has a different return pattern from a direct loan to the firm and cannot serve as a substitute for the latter see also david baron smith s argument raises a number of issues first it brings out the important fact that return patterns for limited liability borrowing and lending depend on the composition of the portfolio that serves as collateral if a firm goes bankrupt a pure equity collateral is worthless whereas a collateral that contains some bonds may still earn a positive return because the bonds have a privileged claim to the firm s remaining assets in general margin contracts with different collateral compositions will generate different return patterns both for the borrower and the lender given this multiplicity of return patterns on margin loans one would not expect that all margin loans can be used as substitutes for direct loans to the firm this intuition is confirmed by smith s demonstration that a particular margin loan namely the loan on pure equity collateral cannot serve this purpose the question remains open whether this is actually needed for the modiglianimiller theorem it might be enough if some appropriate margin loan could be used as a substitute for lending to the firm in pursuing this problem one finds a gap in the standard proof of the modiglianimiller theorem usually one applies an arbitrage argument to show that as a firm changes its debt equity ratio investors in shares and bonds adjust their portfolios so as to leave their overall return patterns unchanged no such arguments are given for other securities related to the firm in particular for margin investments and for margin loans that serve to finance those margin investments without an analysis of professor of economics university of bonn research on this paper was supported by nsf grant soc 75 13437 at princeton university and by the deutsche forschungsgemeinschaft i have benefited from the advice of dwight jaffee and an anonymous referee in a similar vein stiglitz 1972 asserts the value of the firm decregses because there is a divergence in the estimation of the chances of bankruptcy between the lender and the borrower p 467 this analysis rests upon a form of market segmentation that is without economic merit in his model there are two groups of agents optimists and pessimists the optimists invest all their wealth in the firm s equity valued to make the rate of return equal to that on the riskless asset the pessimists are indifferent between the risky firm s bonds and the riskless asset it follows that the optimists being more optimistic than the pessimists must prefer the risky bond to the riskless asset and hence to the equity yet stiglitz assumes that the optimists invest in the equity and not in the risky bond of course if one group invests all its wealth into one asset that asset need not satisfy a marginal equality condition at all a correct analysis of his model leads to the results of this paper

pyramidal groups and debt abstract this paper suggests that debt should be raised by subsidiaries in order to exploit the limited liability of the holding company however when this behavior increases the cost of funds the holding might prefer to raise debt to a point where it would also default when subsidiaries are insolvent after accounting for standard controls we find that holding companies in italian pyramids have higher leverage than subsidiaries and that the cash flow share of the entrepreneur in the subsidiary does not play a significant role these findings are consistent with the implications of our model of group capital structure

delaying the introduction of emissions trading systems implications for power plant investment and operation from a multi stage decision model relying on real options theory we employ a multistage decision model to analyze the effect of delaying the introduction of emission trading systems ets on power plant investments in carbon capture and storage ccs retrofits on plant operation and on carbon dioxide co2 abatement unlike previous studies we assume that the investment decision is made before the ets is in place and we allow ccs operating flexibility for new power plant investments thus the plant may be run in ccs off mode if carbon prices are low we employ monte carlo simulation methods to account for uncertainties in the prices of co2 certificates other inputs and output prices relying on a realistic parameterization for a supercritical pulverized coal plant in china we find that ccs operating flexibility lowers the critical carbon price needed to support ccs investment because it renders ccs investment less irreversible for a low carbon price path operating flexibility also implies that delaying the introduction of an ets hardly affects plant co2 abatement since the plant operator is better off purchasing emission certificates rather than operating the plant in ccs mode interestingly for low carbon prices we find a u shaped relation between the length of the delay and the economic value of the plant thus delaying the introduction of an ets may make investors worse off

low or no subsidy proposing a regional power grid based wind power feed in tariff benchmark price mechanism in china abstract the chinese government plans to adopt a low or no subsidy policy mechanism on renewable energy power development in the future to achieve a balance between reducing financial burden on the government and ensuring profitability of investors as well as to account for the regional differences in china a novel regional wind power grid feed in tariff benchmark price mechanism by net present value npv method and real option ro method is proposed in this paper the results voice support on the appropriateness of gradually decreasing the wind feed in tariff fit benchmark price to as low as the coal fired fit the proposed fit price level is presented as a price range on the basis of a guaranteed internal rate of return irr falls in between 8 to 15 for wind power investors the results indicate that the current fit price should be readjusted and redistributed although the fit price in central and south china grids is recommended to be relatively high the npv of wind farm project value in six regional grids are at the same level

the learning curve and optimal production under uncertainty this article examines the implications of the learning curve in a world of uncertainty we consider a competitive firm whose costs decline with cumulative output because the price of the firm s output evolves stochastically future production and cumulative output are unknown and are contingent on future prices and costs we derive an optimal decision rule that maximizes the firm s market value produce when the price exceeds a critical level which is a declining function of cumulative output we show how the shadow value of cumulative production the total value of the firm and the decision to produce depend on the volatility of the price and other parameters uncertainty increases the critical price required for the firm to produce but also increases the value of thefirm thus during periods of high volatility firms facing a learning curve ought to be producing less but are worth more

the impact of government subsidies and enterprises r d investment a panel data study from renewable energy in china in this research we aim to understand the influence of government subsidies on enterprises research and development r d investment behavior particularly in china s renewable energy sector we are also interested in examining how the attributes of enterprise ownership act as a moderating variable for the relationship between government subsidies and r d investment behavior three classical panel data analysis models including the pooled ordinary least squares ols model the fixed effect model and the random effect model are employed we find that government subsidies have a significant crowding out influence on enterprises r d investment behavior and that the influence is further moderated by the attributes of enterprise ownership moreover a panel threshold regression model is used to demonstrate how the influence of government subsidies on enterprises r d investment behavior will change when government subsidies increase two thresholds 0 6 and 10 1 are identified we recommend that relevant government departments should motivate enterprise r d investment behavioral intention by increasing subsidies within a certain range different attributes of enterprise ownership should also be considered as part of policy reform and re structuring relating to government subsidies

innovation and risk averse firms options on carbon allowances as a hedging tool abstract in a regulated world where government seeks to decarbonize the energy sector firms face both indirect and direct costs of emitting co 2 this study seeks to take the perspective of the firm which needs to maximize profits implying minimization of carbon cost as well in this study the firm can compose the cost optimal portfolio of a investing into carbon saving technology which is currently expensive b investing into carbon saving technology r d and adopt this technology at a later point c buying allowances per ton of emitted co 2 in a carbon market alternatively this could be formulated as a tax and d buying offsets traded in the same market which are based on reduced emissions from deforestation and degradation redd uncertainties in the cost of carbon coming from a lack of commitment in policy making leading to fluctuations in markets and uncertainty in the payoff of r d activities could provide disincentives to incur large up front sunk cost and raise the economic value of being flexible we apply a real options approach with stochastic carbon saving technology costs and stochastic co 2 costs assuming that firms are risk averse they will not only value flexibility but also risk reductions from diversification over the different carbon mitigation options

the public s value for developing ocean energy technology in the republic of korea a contingent valuation study abstract ocean energy is a type of renewable energies and is considered as having a potential power of providing a substantial amount of energy although some forms of ocean energy are developed there is a need for further technological advances to better utilize ocean energy government should take observable actions to compensate for the costs of developing the technology this paper attempts to apply a contingent valuation cv method to obtaining at least a preliminary evaluation of the benefits that ensue from the development of the technology that commercializes ocean energy in the republic of korea overall the cv survey was successfully carried out to elicit the willingness to pay wtp for ocean energy the wtp was statistically significantly estimated from one and one half bounded spike model and the monthly mean wtp estimates was krw 1003 usd 0 9 per household the estimates of the annual benefits to relevant residents amounted to krw 206 4 billion usd 183 8 million

real options theory applied to electricity generation projects a review abstract real options ro theory is well known for enhancing the value of projects under uncertainty this is achieved by modelling the flexibility that managers possess to adjust the projects in response to changes in their environments based on this ro theory could be used to tackle current energy and environmental issues by enhancing the value of electricity generation projects egp especially renewable energy projects rep the potential of ro theory to increase the value of egp and rep has been a driver for new research in the topic however existing literature is still scarce diverse and tends to neglect the state of the art of ro theory e g ro in the design of projects ro studies tend to ignore the use of ro in the design of projects as they are difficult to formulate without the help of experts on the projects designs this paper aims to encourage novel research in the application of ro theory to egp and rep for this purpose a critical review of ro theory its state of the art and its applications to egp and rep is presented this review identifies current areas of interest and gaps in knowledge in this research area it is concluded that new and novel ro research should address the state of the art of ro theory and uncertainties that are exclusive for specific types of projects this future research will require the involvement of electrical engineers specialised in the design of egp and rep

wind power reliability valuation in a hydro dominated power market the colombian case abstract the design of market mechanisms that remunerates the reliability provided by a generator in a power market is a task that aims to ensure the normal operation of the system for the case of a hydro dominated system when wind power is introduced and operated under the merit order effect it is possible to assess the effect of the displacement of hydro generation due to wind generation over the system s reliability in terms of firm energy taking this into account a model that valuates the firm energy provided by wind power in a hydro dominated system is proposed this model considers the effect of wind power over the system s reservoirs and the market price of electricity and valuates the firm energy as the net savings of the system related to the increase in the firm energy of the system when wind power is introduced the results show that wind power under merit order effect increases the firm energy of the system and decreases the market price of electricity being the net savings in comparison to the corresponding hydro only system the reliability income that should be perceived by the wind power generator

international migration remittances and schooling evidence from el salvador abstract we examine the effect of remittances from abroad on households schooling decisions using data for el salvador following the massive war related emigration of the 1980s remittances became a significant source of household income throughout the 1990s we use the cox proportional hazard model to examine the determinants of school attendance measuring income from a source that is uncorrelated with parental schooling remittances we find that remittances have a large significant effect on school retention we estimate that while household income net of remittances has a small though significant impact on the hazard of leaving school in rural and urban areas remittances have a much larger impact on the hazard of leaving school in urban areas the effect of remittances is at its smallest 10 times the size of the effect of other income in rural areas the effect of remittances is about 2 6 times that of other income our finding is of interest in that it suggests that subsidizing school attendance particularly in poor areas may have a large impact on school attendance and retention even if parents have low levels of schooling

u s energy research and development declining investment increasing need and the feasibility of expansion investment in energy research and development in the u s is declining despite calls for an enhancement of the nation s capacity for innovation to address environmental geopolitical and macroeconomic concerns we examine investments in research and development in the energy sector and observe broad based declines in funding since the mid 1990s the large reductions in investment by the private sector should be a particular area of concern for policy makers multiple measures of patenting activity reveal widespread declines in innovative activity that are correlated with research and development r d investment notably in the environmentally significant wind and solar areas trends in venture capital investment and fuel cell innovation are two promising cases that run counter to the overall trends in the sector we draw on prior work on the optimal level of energy r d to identify a range of values which would be adequate to address energy related concerns comparing simple scenarios based on this range to past public r d programs and industry investment data indicates that a five to ten fold increase in energy r d investment is both warranted and feasible

dynamic r d investment policies this paper examines dynamic r d investment policies and the valuation of r d programs in a contingent claims framework we incorporate the following characteristics of r d programs into our model learning by doing collateral learning between different projects in the program interaction between project cash flows periodic reevaluations of the program different intensities of investment capital rationing constraints and competition we show that a firm may invest in multiple projects even if only one can be implemented after development is complete furthermore the firm may significantly alter its funding policy over time for example it may simultaneously develop multiple projects for a period of time then focus on a lead project and potentially resume funding of a backup project if the lead project fails to deliver on its early promise we show how a firm can forecast expected r d spending through time for an optimally executed r d program while project volatility plays an important role in determining r d program value we find that for high volatility projects the optimal investment policy is not very sensitive to changes in or misestimation of volatility in considering whether to accelerate development of a project a firm should balance the adverse effects of increased costs and the loss of investment flexibility against the positive effects of rapid uncertainty resolution and accelerated cash flows in the presence of a budget constraint that prevents the firm from simultaneously accelerating projects and developing projects in parallel we find that if one project significantly dominates another early in the development stage the option to accelerate the lead project is likely to be more valuable than the option to exchange projects thus the backup project would be shelved in order to commit extra resources to development of the lead project finally competition from other firms leads to more parallel investment in the early development stages of projects less parallel investment in the latter stages of development and lower overall investment

do consumers discount the future correctly a market based valuation of residential fuel switching abstract dsm and energy efficiency options are generally evaluated using engineering oriented discounted cash flow procedures which value all cost and benefit streams using a single arbitrary discount rate usually the firm s weighted average cost of capital wacc the wacc based approach ignores financial risk and hence leads to unreliable results in a recent paper in this journal hassett and metcalf depart from this tradition they reflect financial risk by simulating the total variability of returns from energy saving investments their findings indicate that dsm projects are potentially risky suggesting that the net benefits must be discounted at significantly higher rates thus lowering their present values this paper presents a market based evaluation of a particular dsm option residential fuel switching using the capital asset pricing model capm under the capm approach a risk adjusted market based discount rate is estimated for each cost stream fuel maintenance and avoided outlays for electricity the market based results which reflect the systematic risk of each cost stream suggest that fuel switching is probably not cost effective because it is considerably more risky than indicated by a wacc based analysis this supports hassett and metcalf s conclusion that consumers who reject dsm projects are not necessarily acting irrationally

factors influencing the likelihood of regulatory changes in renewable electricity policies abstract the renewable electricity literature has expanded in recent years from the analysis of policies focused on research and development rd the coherence of the policies the size and variety of the coalitions supporting and opposing renewable electricity and the brussels effect the importance of these factors is evaluated in the case of three major markets of renewable electricity germany the netherlands and denmark

valuing investment decisions of renewable energy projects considering changing volatility abstract volatility is an important parameter when evaluating investments using the real options method for renewable energy investments the volatility of cash flow continuously changes because as new information and knowledge are gathered there is less foreseen variation this paper proposes an extended recombining trinomial tree model where the changing volatility is used to generate transition probabilities the changing volatility is generated using a consolidation process where multiple random variables including the market price of electricity carbon price and lending rate are integrated into a low dimension stochastic process a two factor learning curve is used to model the changes of investment cost we apply the proposed model to analyze solar photovoltaic pv power generation investment in china the results show volatility with changing feature compared with constant volatility changing volatility may advance investment decisions and change the project value complete grid parity policy in the solar pv industry is infeasible because the opportunity cost brought by the option of delaying cannot be offset the changing volatility may produce a lower and equally effective subsidy level compared with constant volatility a carbon emission trading scheme is helpful in advancing investments in renewable energy which is reflected in improvements in project value advancements in investment decisions and reductions in the required subsidy level

gender of children bargaining power and intrahousehold resource allocation in china abstract based on the prevalent son preference in china this paper proposes a new measure of relative bargaining power within the household using data from china health and nutrition survey we show that a woman with a first born son has a 3 9 percentage points greater role in household decision making than a woman with a first born daughter having a first born son improves the mother s nutrition intakes and reduces her likelihood of being underweight while thinking of these impacts as being channeled through intrahousehold bargaining power we cannot fully rule out other possible direct effects of a first born son on the outcomes

uncertainty networks and real options abstract two pervasive features of industries experiencing rapid technological progress are uncertainty with regard to the technological feasibility and marketabilility of an innovation and networks the dense web of research alliances and joint ventures linking firms to each other this paper connects the two disparate phenomena using the notion of real options it visualizes firms as nodes and the links connecting them as call options that give each pair of interlinked firms the right but not the obligation to sink additional resources into a project at some future date conditional on favorable technical market information the formation of networks is endogenous as firms establish links with others by appraising their value using option pricing methods our model explains the following why networks are particularly ubiquitous in industries that are subject to high uncertainty why networks often display an interconnected hubs and spokes architecture why small or peripheral spoke firms often sink resources into relatively higher risk higher return investment projects and those too with only large or hub firms and why so many research alliances are continuously formed and dissolved our paper also outlines the conditions under which ex ante symmetric firms end up ex post forming complex asymmetric networks

quantifying the impact of r d on pv project financing costs abstract energy technology research and development r d typically focuses on advancing the performance and reducing equipment and installation costs however such r d can also have significant indirect impacts on other factors incorporating the impact that r d activities have on financing costs can provide a more complete picture of the consequences of these decisions and may allow policymakers to make better decisions in this paper we discuss some historical examples of r d impacting financing costs in the solar energy sector summarize the areas of r d that can impact financing and describe methodological approaches that can be used to quantify the impact of r d on financing costs and as a result the levelized cost of energy lcoe we estimate that r d driven reductions in financing costs in the solar sector from current levels to low risk levels could reduce lcoe approximately 25 alternatively without the r d advances needed to prevent future risks and complications financing costs in the solar sector could increase by as much as 115

business groups and social welfare in emerging markets existing evidence and unanswered questions abstract this paper reviews existing studies of the role of emerging market business groups a ubiquitous but poorly understood organizational form i first suggest that understanding the definition of business groups is itself an interesting albeit under studied research issue i then argue that the existing evidence suggests that the performance effects of group affiliation are large and generally positive there is substantial evidence that part of this is due to welfare enhancing functions originating in the idea that groups substitute for missing outside institutions but that part is also due to welfare reducing minority shareholder exploitation evidence is lacking on the extent to which groups facilitate rent seeking or the exercise of market power evidence is also lacking on the extent to which groups hamper the future development of markets the paper identifies areas where research is needed before current competition policy experiments in countries like china india and korea can be evaluated

the strategic impact of resource flexibility in business groups we show that in business groups with efficient internal capital markets resources may be channelled to either more or less profitable units depending on the amount of internal resources a group may exit a market in response to increased competition or channel funds to the subsidiary operating in that market this has important implications for the strategic impact of group membership affiliation to a monopolistic subsidiary can make a cash rich poor firm more less vulnerable to entry deterrence also resource flexibility within a group makes subsidiaries reaction functions flatter thus discouraging rivals strategic commitments when entry is accommodated

heterogeneity in the intrahousehold allocation of international remittances evidence from philippine households abstractthis article shows that heterogeneity in the intrahousehold allocation of remittances sent by temporary international migrant workers exists among households in the philippines and may be attributable to the absence of the spouse suggesting moral hazard and to the gender and educational attainment of the household head indicating differences in preferences glm estimates and post estimation tests reveal that male heads spend more on alcohol and tobacco that the presence of a female decision maker in a household increases allocations to goods that improve the welfare of the children and that household heads with less formal education allocate more to education

intra household resource allocation an inferential approach if household income is pooled and then allocated to maximize welfare then income under the control of mothers and fathers should have the same impact on demand with survey data on family health and nutrition in brazil the equality of parental income effects is rejected unearned income in the hands of a mother has a bigger effect on her family s health than income under the control of a father for child survival probabilities the effect is almost twenty times bigger the common preference or neoclassical model of the household is rejected if unearned income is measured with error and income is pooled then the ratio of maternal to paternal income effects should be the same equality of the ratios cannot be rejected there is also evidence for gender preference mothers prefer to devote resources to improving the nutritional status of their daughters fathers to sons

don t tell on me experimental evidence of asymmetric information in transnational households although most theoretical models of household decision making assume perfect information empirical studies suggest that information asymmetries can have large impacts on resource allocation i demonstrate the importance of these asymmetries in transnational households where physical distance between family members can make information barriers especially acute i implement an experiment among migrants in washington dc and their families in el salvador that examines how information asymmetries can have strategic and inadvertent impacts on remittance decisions migrants make an incentivized decision over how much of a cash windfall to remit and recipients decide how they will spend a remittance migrants strategically send home less when their choice is not revealed to recipients recipients make spending choices closer to migrants preferences when the migrants preferences are shared regardless of whether or not the spending choices are revealed to the migrants suggesting that recipients choices are inadvertently affected by imperfect information

is ignorance bliss the effect of asymmetric information between spouses on intra household allocations fundamental questions about how resources are allocated within the family remain unresolved because family decision making is a repeated game and there is caring it is generally posited that the marriage relationship exploits the high degree of information sharing between spouses even if official cash transfers themselves are common knowledge between household members the transfer may loosen constraints over other income sources less easily monitored empirical research has documented inefficient allocations between spouses and non cooperative behavior as a result of asymmetric information in migrant households however the implications of asymmetric information between cohabiting spouses are still relatively unexplored in this paper the authors used data from a field experiment in southern ghana to test the effect of windfalls on intra household allocation the results from the experiment indicate that spouses behave according to a non cooperative marital allocation contract with differences in spending patterns by gender

project management under risk using the real options approach to evaluate flexibility in r d managerial flexibility has value in the context of uncertain r d projects as management can repeatedly gather information about uncertain project and market characteristics and based on this information change its course of action this value is now well accepted and referred to as real option value we introduce in addition to the familiar real option of abandonment the option of corrective action that management can take during the project the intuition from options pricing theory is that higher uncertainty in project payoffs increases the real option value of managerial decision flexibility however r d managers face uncertainty not only in payoffs but also from many other sources we identify five example types of r d uncertainty in market payoffs project budgets product performance market requirements and project schedules how do they influence the value from managerial flexibility we find that if uncertainty is resolved or costs revenues occurafter all decisions have been made more variability may smear out contingencies and thus reduce the value of flexibility in addition variability may reduce the probability of flexibility ever being exercised which also reduces its value this result runs counter to established option pricing theory intuition and contributes to a better risk management in r d projects our model builds intuition for r d managers as to when it is and when it is not worthwhile to delay commitments for example by postponing a design freeze thus maintaining flexibility in r d projects

internal versus external capital markets this paper presents a framework for analyzing the costs and benefits of internal versus external capital allocation we focus pritnarily on comparing an internal capital market with bank lending while both represent centralized forms of financing in the former case the financing is owner provided while in the latter ceise it is not we argue that the ownership aspect of internal capital allocation has three important consequences 1 it leads to more monitoring than bank lending 2 it reduces managers entrepreneurial incentives and 3 it makes it easier to efficiently redeploy the assets of projects that are performing poorly under existing management

real option valuation in renewable energy literature research focus trends and design abstract in light of intensive development of the renewable energy re sector a growing number of academic papers address the complexity of re investment planning and valuation to take account of the high risk profile and irreversibility of re investments researchers have resorted to sophisticated real options ro approaches that enable flexibility to be incorporated into project design in the face of an uncertain environment the variety of different frameworks and models adopted as well as a lack of aggregated analysis of the field suggest a need for a critical review of ro methodology and design in re assessment this study describes the research focus trends and design found in contemporary academic literature devoted to re valuation with a ro approach particular attention is given to ro in project and policy design the results give a comprehensive picture of existing research on the topic thus providing researchers with a solid foundation for further study and indications of directions for future development furthermore the findings provide policymakers and project planners with valuable insights into key aspects of re project and policy design

the flotation of companies on the stock market abstract in some countries the size of the stock market and the number of listed companies have persistently lagged behind the growth of the economy trading externalities can help explain this fact an entrepreneur who goes public increases risk sharing opportunities for others this externality can lead to an inefficiently low number of listed companies and also generate multiple equilibria when flotation decisions are positively correlated across entrepreneurs this happens if these face borrowing constraints and lack liquidity and thus cannot diversify their portfolios unless they go public it also happens if trading shares is costly so that a sufficient number of issues must be listed to lure investors into the market

corporate groups dual class shares and the value of voting rights abstract it is known that deviating from the one share one vote principle through the issue of non voting stock increases the value of outsiders voting rights we argue that the creation of a business group is another way to deviate from one share one vote and we show that it produces a larger voting share premium in holding companies as a consequence having both subsidiaries and non voting stock produces a multiplier effect on the voting premium the puzzling size of the premium in italy was never related to the interaction of pyramiding and non voting stock our empirical study confirms that the premium is larger for holding companies issuing non voting stock than for similar operating companies without non voting equity

investments of uncertain cost abstract this paper examines irreversible investment decisions when projects take time to complete and are subject to two types of cost uncertainty the first is technical uncertainty i e uncertainty over the physical difficulty of completing a project which is only resolved as the investment proceeds the second is input cost uncertainty i e uncertainty over the prices of construction inputs or over government regulations affecting construction costs which is external to the firm these two types of uncertainty have very different effects on the investment decision a simple investment rule is derived that maximizes firm value and is used to analyze the decision to start or continue building a nuclear power plant during the 1980s

renewable energy technologies as beacon of cleaner production a real options valuation analysis for liberia abstract the importance of energy consumption for growth and development calls for improved decision support for a sustainable energy transition given africa s dependence on fossil fuels the economic and environmental savings from research development and deployment of renewable energy technologies may be substantial although the benefits of renewable energy technologies research development funding may appear to be low assuming immediate deployment the uncertainty in the non renewable energy price and the flexibility over timing makes research development program more appealing this study develops different scenarios in order to quantify benefits provided by research development funding for renewable power generation in liberia by using real options pricing approach to estimate the value of renewable energy technologies while taking into account the uncertainty of fossil fuel prices and learning by doing in renewable energy technologies the optimal solution shows that renewable energy technologies are economically attractive especially when external costs are internalized however annual research development funding is low and should be raised significantly in order to guarantee the highest possible investment incentives with minimal expenditures the study also hypothesizes that with the likelihood of renewable energy to replace non renewable energy renewable power use in liberia can potentially reduce carbon dioxide emissions by approximately 13 9 by 2015 compared to the 2008 levels the key insight provided by the real options analysis in this study is that while renewable energy may have inherent limitations such as seasonality of supply low energy content and capacity factor issues they still hold a significant amount of value which can only be detected when externalities are internalized thus underscoring the need for external costs related policies

quantifying the value of investing in distributed natural gas and renewable electricity systems as complements applications of discounted cash flow and real options analysis with stochastic inputs abstract one energy policy objective in the united states is to promote the adoption of technologies that provide consumers with stable secure and clean energy recent work provides anecdotal evidence of natural gas ng and renewable electricity re synergies in the power sector however few studies quantify the value of investing in ng and re systems together as complements this paper uses discounted cash flow analysis and real options analysis to value hybrid ng re systems in distributed applications focusing on residential and commercial projects assumed to be located in the states of new york and texas technology performance and operational risk profiles are modeled at the hourly level to capture variable re output and ng prices are modeled stochastically as geometric ornstein uhlenbeck ou stochastic processes to capture ng price uncertainty the findings consistently suggest that ng re hybrid distributed systems are more favorable investments in the applications studied relative to their single technology alternatives when incentives for renewables are available in some cases ng only systems are the favorable investments understanding the value of investing in ng re hybrid systems provides insights into one avenue towards reducing greenhouse gas emissions given the important role of ng and re in the power sector

valuation for renewable energy a comparative review abstract environmental cost benefit analysis is applied for the evaluation of renewable energy projects since some benefits and costs do not have monetary values economic valuation techniques are applied to estimate them this paper reviews the literature on the valuation evaluation of renewable energy resources and summarizes the methods used in them it discerns four main streams of valuation in renewable energy the first is economic welfare oriented and comprises stated and revealed preference methods the second is the financial option analysis with a financial background the third is emergy analysis which is mostly an ecological engineering based method with capable economic links and the fourth is again economic but not welfare based the paper discusses the main directions discerned in these studies and recognizes first that proper valuation takes place only in the first method while the other methods describe only evaluation procedures and second that there is a research gap that has yet to be filled in as compared to other areas of environmental resource and energy economics

the paradox effects of uncertainty and flexibility on investment in renewables under governmental support abstract given that companies have the flexibility to decide about size and timing of a renewable electricity investment the existence of four paradox effects is proven only the type but not the amount of governmental support has an influence on the optimal capacity of a renewable electricity generating system a decrease of governmental support over time may result in higher capacities of renewables installed on an industry level at least on the short term likewise higher uncertainty may encourage an expansion of these capacities in contrast technological progress may hamper the expansion of capacities finally these four paradox effects are exemplified in a germany based case study regarding a photovoltaic project

guarantees leverage and taxes this paper considers the optimal joint decision on firm organization and capital structure under a tax bankruptcy trade off stressing the role of guarantees against default conditional guarantees which are embedded in parent subsidiary structures increase joint value and joint debt relative to unguaranteed stand alone firms such guarantees that are unilateral rather than mutual for moderate default costs may dominate the unconditional mutual guarantees built in mergers we study the optimal characteristics of both guarantors and beneficiaries as well as their impact on the self enforcement potential of conditional guarantees

separate spheres bargaining and the marriage market this paper introduces the separate spheres bargaining model a new model of distribution within marriage it differs from divorce threat bargaining models e g manser brown mcelroy horney in that the threat point is not divorce but a noncooperative equilibrium within marriage this noncooperative equilibrium reflects traditional gender roles the predictions of our model thus differ from those of divorce threat bargaining models in the separate spheres model cash transfer payments to the mother and payments to the father can but need not imply different equilibrium distributions in existing marriages in the long run the distributional effects of transfer policies may be substantially altered by changes in the marriage market equilibrium

valuing chinese feed in tariffs program for solar power generation a real options analysis newhuadu business school research fund china sustainable energy program g 1305 18257 national social science foundation of china 12zd059 ministry of education 10gbj013

the use of real options approach in energy sector investments abstract energy shortage global warming and climate change led to an increase in the use of alternative sources of energy with renewable energy sources res playing a fundamental role in this new energetic paradigm however the investment costs often constitute a major barrier to their spread use moreover the overall benefits of renewable energy technologies are often not well understood and consequently they are often evaluated to be not as cost effective as traditional technologies from the moment that the energy sector started a deregulation process with a high level of competitiveness and associated increased market uncertainty traditional project evaluation techniques alone became insufficient to properly deal with these additional risk and uncertainty factors the diffusion of the renewable energy technologies is also affected by this feature the way investors evaluate their investments call now for the use of more sophisticated evaluation techniques real options approach can deal with these issues and as so began to be considered and applied for the energy sector decision aid this approach it is now extensively widespread in evaluating investment projects in the energy sector a large set of applications in almost all fields of energy decision making from electricity generation technologies appraisal to policy evaluation is available in the literature however the use of this technique in the field of res is still limited and worth to be analysed this paper addresses this issue a review of the current state of the art in the application of real options approach to investments in non renewable energy sources and res is presented giving perspectives for further research in this field

time to build option value and investment decisions abstract investment decisions and outlays are often made sequentially for example the rate at which construction proceeds is usually flexible and can be adjusted with the arrival of new information traditional discounted cash flow methods which treat the pattern of investment as fixed ignore this flexibility and understate the value of the project this paper uses contingent claims analysis to derive optimal decision rules and to value such investments we determine the effects of time to build opportunity cost and uncertainty on the investment decision for reasonable parameter values we show how a simple npv rule can lead to gross errors

credit and equity rationing in markets with adverse selection previous theories of financial market rationing focussed on a single market either the credit or the equity market an interesting question is whether credit and equity rationing are mutually compatible and how they interact we consider a model with two dimensional asymmetric information where entrepreneurs have private information about both the expected returns and the risk of their projects we show that credit and equity rationing may occur individually or simultaneously moreover competition between the two markets may generate the adverse selection that leads to rationing outcomes

economic and socio economic assessment methods for ocean renewable energy public and private perspectives this paper provides a comprehensive review of the current state of the art of the economics and socio economics of ocean renewable energy ore the many ways in which the viability and impacts of an ore project are assessed and an analysis of the current weaknesses issues or inappropriateness of the metrics and methodologies used in their definition and presentation the outcomes of this paper are anticipated to benefit the ore and wider renewable sector as a whole the review revealed that for the most part the current study of economics and socio economics of ore remain separate and discrete areas of research the economic methods utilised appear to be comprehensive but are limited to project or private investor level the methods identified for socioeconomic assessment fall between traditional and now routine environmental assessment approaches and more novel holistic approaches such as ecosystem services and life cycle assessment the novel section of the paper explored the connectivity between the economics and socio economics of ore in relation to project developments and policy planning a visualisation method was created of concentric rings intersected by related axis of economic socio economic and environment and enabled the examination of the benefits arising from the connectivity between the two spheres the concept of sustainable development process and the integration of environmental assessment for ore was also explored and how it responds to differing stakeholder aspirations and interpretations the analysis revealed that there was a divergence between public and private economic and socioeconomic assessments for ore environmental assessment is primarily a public responsibility but with significant inputs from the private developer involved while economic assessments are conducted primarily by the developer and or investor at their own behest however the two spheres of economic and socio economic for ore are highly connected and synergistic and must be examined in a holistic manner

a land of milk and honey with streets paved with gold do emigrants have over optimistic expectations about incomes abroad millions of people emigrate every year in search of better economic and social opportunities anecdotal evidence suggests that emigrants may have over optimistic expectations about the incomes they can earn abroad resulting in excessive migration pressure and in disappointment among those who do migrate yet there is almost no statistical evidence on how accurately these emigrants predict the incomes that they will earn working abroad in this paper the authors combine a natural emigration experiment with unique survey data on would be emigrants probabilistic expectations about employment and incomes in the migration destination their procedure enables them to obtain moments and quantiles of the subjective distribution of expected earnings in the destination country the authors find a significant underestimation of both unconditional and conditional labor earnings at all points in the distribution this underestimation appears driven in part by potential migrants placing too much weight on the negative employment experiences of some migrants and by inaccurate information flows from extended family who may be trying to moderate remittance demands by understating incomes