analytical solution for an investment problem under uncertainties with shocks abstract we derive the optimal investment decision in a project where both demand and investment cost are stochastic processes eventually subject to shocks we extend the approach used in dixit and pindyck 1994 to deal with two sources of uncertainty and we assume that the underlying processes are jump diffusion processes assuming certain conditions on the parameters we are able to derive a closed expression for the value of the firm finally we present comparative statics for the investment threshold with respect to the relevant parameters

delta hedging strategies comparison abstract in this paper we implement dynamic delta hedging strategies based on several option pricing models we analyze different subordinated option pricing models and we examine delta hedging costs using ex post daily prices of s p 500 furthermore we compare the performance of each subordinated model with the black scholes model

r d profitability the role of risk and knightian uncertainty this paper provides the first empirical attempt of linking firms profits and investment in r d revisiting knight s risk uncertainty and profit hart schaffner marx boston 1921 distinction between uncertainty and risk along with the risky profit maximising scenario identifying a second off setting unpredictable bias that leads to heterogeneous returns to r d investments is crucial to fully understand the drivers of corporate profits consistently with the knightian theory that relates risk to profitability we model the impact of risk and uncertainty on profits and provide a first empirical attempt to model the effect of ambiguity a particular type of uncertainty on r d returns

analysis of attendees expenditure patterns to recurring annual events examining the joint effects of repeat attendance and travel distance abstract this study examines the changes in expenditure patterns of attendees to recurring annual events with specific emphasis on the effects of repeat attendance and travel distance this study utilizes a unique dataset accumulated from six consecutive years at a recurring annual event hosted in miami united states by using the almost ideal demand system aids we estimate price elasticities and cross price elasticities among tourist expenditure categories while jointly examining the effects from the trip characteristics of repeat attendance and travel distance from the econometric analysis we find expenditure own price and cross price elasticities that conform to the literature and confirm the strong inter relationship among the respective categories of the overall travel budget in addition our results confirm a significant difference in expenditure patterns between first time and repeat attendees as well as between long haul and short haul travelers

the valuation of sequential exchange opportunities sequential exchange opportunities are valued using the techniques of modern option pricing theory the vehicle for analysis is the concept of a compound exchange option this security is shown to exist implicitly in several contractual settings a valuation formula for this option is derived the formula is shown to generalize much previous work in option pricing several applications of the formula are presented

venture capital staged financing and optimal funding policies under uncertainty abstract our paper presents a dynamic model of entrepreneurial venture financing under uncertainty based on option exercise games between an entrepreneur and a venture capitalist vc in particular we analyze the impact of multi staged financing and both economic and technological uncertainty on optimal contracting in the context of vc financing our novel approach combines compound option pricing with sequential non cooperative contracting allowing us to determine whether renegotiation will improve the probability of coming to an agreement and proceed with the venture it is shown that both sources of uncertainty positively impact the vc investor s optimal equity share specifically higher uncertainty leads to a larger stake in the venture and renegotiation may result in a dramatic shift of control rights in the venture preventing the venture from failure moreover given ventures with low volatility situations might occur where the vc investor loses his first mover advantage based on a comparative static analysis new testable hypotheses for further empirical studies are derived from the model

real investment options with multiple sources of rare events abstract we value real investment options when the underlying asset follows a mixed jump diffusion process involving various types sources of rare events jumps these jumps are assumed independent of each other with each type having a log normally distributed jump size and a random poisson distributed arrival time they may represent uncertainties about the arrival and impact on the underlying investment of new information concerning technological innovation competition political risk regulatory effects and other sources an analytic solution is presented for european claims call or put options with multiple sources of jumps a discrete time markov chain methodology implemented within a finite difference scheme is proposed for the valuation of american as well as european options the approach is also applicable to financial options with multiple types of rare events the approach is illustrated through valuing complex real options with compound features involving interactions between optimal investment and subsequent operating decisions specifically we value a growth option and an extension option

through thick and thin how fair trade consumers have reacted to the global economic recession research on fair trade has flourished over the past decade as fair trade food products have gained popularity amongst consumers in many developed economies this study examines the effects of recessionary economic conditions on fair trade consumers purchasing behaviour an online survey was administered to 306 fair trade consumers from canada the united kingdom and the united states of america the results reveal a discrepancy among fair trade consumers as only consumers that purchase fair trade on an occasional basis adhered to established consumer behaviour norms i e decreasing their purchases of fair trade products and becoming significantly more price aware respondents who actively consume fair trade generally remained loyal to their purchase while some active consumers altered their purchasing behaviour this phenomenon was not common amongst this group as no statistically significant changes were observed differences were also noted among the three countries as the canadian and us fair trade consumers significantly decreased their consumption of fair trade as a result of the recession whereas the uk consumers did not in addition to the research results theoretical and managerial implications will be discussed along with future research directions

consumer ethics an empirical investigation of the ethical beliefs of austrian consumers business and marketing ethics have come to the forefront in recent years while consumers have been surveyed regarding their perceptions of ethical business and marketing practices research has been minimal with regard to their ethical beliefs and ideologies in addition no study has examined the ethical beliefs of austrian consumers even though austria maintains a unique status of political neutrality nonalignment stability economic prosperity and geographical proximity to the east and west european countries this research investigates the relationship between machiavellianism ethical ideology and ethical beliefs of austrian consumers the results indicate that austrian consumers are mostly situationists who while rejecting moral rules judge the ethics of a behavior by the consequences and outcomes of the situation

do you need a receipt exploring consumer participation in consumption tax evasion as an ethical dilemma the paper focuses on the consumer side of consumption tax evasion cte a subcategory of the shadow economy the ethical dimensions of tax evasion have been effectively captured by the existent literature on tax morale yet it fails to address the role consumers can play in cte further there is a shortage of tax morale studies that explore ethical decision making as a process composed of multiple steps and determinants to bridge these gaps we turned to the consumer ethics literature and jones issue contingent model of ethical decision making we developed the conceptual model of consumer ethical decision making for cte by incorporating four key elements from the issue contingent model i e moral recognition moral judgement moral intention and moral intensity while personal moral philosophies were introduced as an antecedent to the consumer ethical decision making process the study was conducted on a sample of consumers from slovenia where cte is a widespread phenomenon the findings confirm that consumers recognition of cte as a moral issue is influenced by their moral philosophy and perceptions regarding the magnitude of cte s consequences their visibility probability and temporal immediacy these perceptions also play an important role in determining consumers moral judgements and intentions regarding cte moreover through the process of moral recognition and moral judgement consumers form intentions to participate in or avoid cte the study holds important implications for public policy makers who are trying to reduce the tax gap in times of economic instability and fiscal crisis

economic performance measurement systems for event planning and investment decision making abstract cities and destinations have assigned a strategic role in tourist and place marketing to events economic impact analyses are one of the tools that policy makers can use to support effective investment decision making in event planning the more precise and accurate these analyses are the more helpful to event planning they will be this paper proposes an innovative methodology to improve the economic impact estimate of events it combines tested action tracking technologies to track the consumer behaviour of visitors to the event radio frequency identification passive rfid with bottom up input output models a case study was carried out on the festival of economics in trento italy a cultural hallmark event aimed at high tourist flows image making and place branding and marketing the paper suggests the inclusion of accurate economic impact analyses of events in the range of instruments used by policy makers to support effective decision making and investment

strategic growth options we provide a strategic rationale for growth options under uncertainty and imperfect competition in a market with strategic competition investment confers a greater capability to take advantage of future growth opportunities this strategic advantage leads to the capture of a greater share of the market either by dissuading entry or by inducing competitors to make room for the stronger competitor as a result of this strategic effect payoffs are in a rough sense more convex than in the case of no investment in a growth option when the strategic advantage is strong increased uncertainty encourages investment in growth options higher uncertainty means more opportunity rather than simply larger risk if the strategic effect is weak the reverse is true on the other hand an increase in systematic risk discourages the acquisition of growth options our results contradict the view that volatility is a strong disincentive for investment

evolutionary competition in a mixed market with socially concerned firms abstract in this paper we study an oligopoly market where profit maximizing firms and socially concerned firms compete in quantities confronting remarks by milton friedman and gary becker we are using an evolutionary setting to investigate the endogenous choice of the proper objective of business firms and the influence of product differentiation on the long run survival of firms which pursue non profit motives we find that firms which consider a combination of profit and consumer welfare can indeed have larger market shares and profits than their profit maximizing rivals one insight is that it might pay off for shareholders to consider stakeholder welfare but that the level of social concern should not be too high based on a strategy s profitability we consider asynchronous evolutionary updating with firms selecting nash quantities or choosing best replies to the expected market quantity here we observe that the consumers willingness to pay a price premium for products is crucial for the long run survival of socially concerned firms depending on the degrees of product differentiation and social concern long run outcomes consist either of both types of firms or only one type of firm if the firms propensity to switch between a social or a profit maximizing strategy is sufficiently large steady states are unstable and even complicated dynamics can occur

a real options game of alliance timing decisions in biopharmaceutical research and development abstract in this article we examine the alliance timing trade off facing both pharmaceutical and biotech firms in a stochastic and competitive environment specifically we introduce a real options game rog where a pharmaceutical company can choose between two competing biotech firms by sequentially offering a licensing deal early or late in the new drug development process we find that when the alliance raises the drug market value significantly the agreement is signed late in the drug development process this suggests that the postponement effect implied by the use of real options prevails over the biotech firms competition effect which would instead play in favor of an early agreement for pre emption reasons when the alliance does not raise the drug market value significantly the optimal timing depends on the level of royalties retained by the pharmaceutical company in particular an early agreement is signed in the presence of a low level of royalties in this case indeed the competition effect becomes predominant because the pharmaceutical company can substantially reduce the upfront payment and thus the potential loss incurred if the biotech partner does not exercise her option to continue the new drug development process we also show that the alliance timing outcomes of our real options game considerably differ from those obtained when both parties use the net present value npv to assess their payoffs

conjectural variations equilibrium in a mixed duopoly we study a mixed duopoly model in which a state owned public firm maximizing domestic social surplus and a private foreign firm compete under general enough assumptions we first justify the concept of conjectural variations equilibrium cve applied to the model by demonstrating concavity of the expected profit function of each agent next we establish existence and uniqueness results for the conjectural variations equilibrium in the described duopoly a particular case of a cve with constant influence conjecture coefficients is also examined

the inconsistency of consistent conjectures abstract conjectural variation models have been criticized because firms are right for the wrong reasons and because possible equilibria are abundant lately several papers have attempted to meet these difficulties by some condition of consistency or rationality on the conjectural variation this paper shows that stronger versions of such conditions lead into paradoxes while the weaker forms are of little use in solving the conceived problems the original cournot assumption actually satisfies consistency enterions the problems with consistent conjectures illuminates fundmental problems with too demanding information assumptions like perfect foresight such assumptions may create non trivial structures of self reference

mixed oligopoly cost reducing research and development and privatisation abstract we develop a mixed oligopoly model to examine the role of r d subsidies and evaluate the welfare effects of privatisation in solving the oligopoly model we propose a novel use of aggregative games techniques our analysis reveals that privatisation reduces the optimal r d subsidy furthermore privatisation improves social welfare but only when the number of firms is sufficiently large implementing solely a subsidy to r d does not lead to a privatisation neutrality theorem or irrelevance result

staging of venture capital investment a real options analysis this paper uses contingent claims analysis to investigate the staging decision of venture capitalist vc in a principal agent framework venture capital investment opportunities are modeled as real options with multiple volatilities and the entrepreneur s incentive is assumed to maximize the probability of getting funded in the next financing round two celebrated formulae in the option pricing literature are generalized to evaluate these real options we find that staging not only gives the vc a waiting option but also mitigates the agency problem of the entrepreneur undertaking too conservative activities moreover we find that the vc tends to stage her investment when the expected growth rate of the venture s market value is lower however the risk free interest rate is not an important factor in the staging decision our model also provides a good explanation for existing empirical evidence on the staging of venture capital investment

stochastic competitive entries and dynamic pricing abstract how should firms price new products when they do not know the timing nor the nature of the next competitive entry to guide managers pricing decisions in such contexts we propose a dynamic pricing model with two types of randomly timed entry i e imitative and innovative the characterization of the equilibrium strategies reveals how optimal prices vary with the manager s knowledge about the timing of future competitive entries we show that price skimming is not always optimal when entry dates are unknown to managers everything else equal we demonstrate that the randomness of competitive entries make forward looking managers to choose constant prices even though the characteristics of the market would have justified skimming the demand in the normal course moreover we show that the constant pricing policy remains optimal even when the incumbent s optimal pricing strategy influences the probability of facing a competitive entry finally we find that uncertainty does not necessarily hurt firms profits

the venture capital entry model on game options with jump diffusion process abstract this paper aims to apply game options to construct the optimal decision making and management tool for venture capital vc firms this model emphasizes the inferences with game options on the market structures formed by different competition and investment strategies of the two vc firms to reflect the investment returns these market structures are classified into an entry deterred game specific monopoly a leader s dominated strategies duopoly and simultaneous investment it is considered how to select investment timing to avoid any potential competitive threats in order to provide the optimal expected threshold values for the investment decisions of vc firms

open innovation a real option to restore value to the biopharmaceutical r d abstract the pharmaceutical landscape has changed and new business models based on alliances are increasingly being adopted in this industry biotechnology advances have pushed this development and pooling complementary resources coming from incumbents and newcomers is a key skill to succeed these are the premises for a quick spread of the open innovation oi paradigm in this industry rd to achieve this goal the authors propose a closed form model that is easy to implement to evaluate the oi initiative for selecting an optimal rd i e licensing in or not and the self financing policy the proposed model can be easily implemented into a spreadsheet and the inputs needed to run it are usually requested to evaluate projects using the most used net present value based methods moreover some parameters of the model allow strategic aspects to be considered for example the nature of the project core non core the impending project phase and the risk sharing opportunity the results of the developed numerical example show that the selected portfolio is well balanced in terms of development stages core non core therapeutic areas and licensing in an inbound open innovation solution is preferred in the case of products at their early stages of development

interpreting suboptimal business outcomes in light of the coase theorem lessons from sidmouth international festival abstract the management team of the world famous sidmouth festival resigned in 2004 after failing to secure bad weather underwriting worth 200 000 and amidst widespread fears that the festival was doomed while claims of a local economic impact of 5 million are seriously flawed it is highly likely that the local economy did benefit by at least several times the amount of the required insurance failure to capture these net positive benefits is linked to ill defined property rights rising transaction costs incomplete information from unreliable sources and actual or feared free riding these conditions prevented the type of efficient bargaining solution in the face of externalities envisioned by the coase theorem practically all of the problems preventing the ideal coasean solution could have been addressed by granting key stakeholders individual ownership rights hence while the coase solution was not applicable the theorem s predictions or its corollary s predictions were confirmed

evaluating pharmaceutical r d under technical and economic uncertainty this study sets up a compound option approach for evaluating pharmaceutical r d investment projects in the presence of technical and economic uncertainties technical uncertainty is modeled as a poisson jump that allows for failure and thus abandonment of the drug development economic uncertainty is modeled as a standard diffusion process which incorporates both up and downward shocks practical application of this method is emphasized through a case analysis we show that both uncertainties have a positive impact on the r d option value moreover from the sensitivity analysis we find that the sensitivity of the option with respect to economic uncertainty and market introduction cost decreases when technical uncertainty increases

measuring unethical consumer behavior across four countries the huge amounts spent on store security and crime prevention worldwide not only costs international businesses but also amounts to a hidden tax on those law binding consumers who bear higher prices most previous research has focused on shoplifting and ignored many other ways in which consumers cheat businesses using a hybrid of both qualitative research and survey approaches in four countries an index of 37 activities was developed to examine consumers unethical activities across uk us france and austria the findings indicate that around three quarters of consumers in all four countries can be classified as heavy offenders for these minor cheats the paper argues that government agencies marketers and retailers should adopt more pro active preventative approaches rather than reactive loss limitation measures to combat unethical behavior

an anticipative hyperbolic discount utility on intertemporal decision making discount utility is facilitated to scrutinize human decision behaviors for different points in time under the consideration of time preference recent studies are extended from two basic models which are the exponential and the hyperbolic discount models and the more popular hyperbolic discount model is well recognized for resolving the effects of preference reversal and is less steeply discounting than the exponential discount model however to enhance the capability of explaining intertemporal decision making behavior an anticipative hyperbolic discount utility model was proposed which revised the conventional hyperbolic discount utility by introducing the anticipative parameters under the consideration of anticipation of future gains or losses an empirical investigation was employed to validate the effectiveness of the proposed anticipative hyperbolic discounting utility model which was able to empirically go beyond the traditional hyperbolic discounting utility model also the proposed anticipative hyperbolic model is capable of dealing with the anomalies of preference reverse and framing effects

real options valuation for a biotechnology company many companies in the biotechnology industry have significant valuations despite having no product revenue because their products are in early stages of development in the past 10 15 years investors have bid up the stock prices of companies showing promise of developing a blockbuster drug we explain the decision tree method and binomial lattice method which adds a growth option and use them to value a biotechnology company agouron pharmaceuticals as the sum of the values of its drug development projects the growth option was added because the development of an initial new molecular entity nme is similar to purchasing a call option on the value of a subsequent nme we compare our computed values of agouron with actual market values at selected points in time during the development of agouron s viracept a drug used to treat hiv positive patients

game theoretic models of mixed oligopoly abstract in this paper we review various models that have been proposed for the study of mixed oligopoly that is markets in which private and public firm compete on equal basis using only market instruments

a typology and assessment of multi sector regional economic impact models loveridge s 2004 a typology and assessment of multi sector regional economic impact models reg studies38 305 317 this paper provides a summary and critical review of the types of multi sector models with inter sectoral linkages commonly used to predict the total impact of an event plant opening closing or policy change on the regional economy the following model types are included economic base input output social accounting matrix integrated econometric input output and computable general equilibrium models appropriate uses of the various modelling approaches are presented along with some general operating principles and ethical considerations the paper concludes with directions for future research loveridge s 2004 une typologie et un bilan des modeles des impacts economiques regionaux multi sectoriels reg studies38 305 317 cet article cherche a faire le resume et la critique des typologies de modeles multi sectoriels qui ont des liens intersectoriels et dont on se sert frequemm

a cross national investigation on how ethical consumers build loyalty toward fair trade brands although fair trade has recently experienced rapid growth around the world there is lack of consumer research that investigates what determines consumers loyalty toward fair trade brands in this research we investigate how ethical consumption values ecv and two mediating variables fair trade product beliefs ftpb and fair trade corporate evaluation ftce determine fair trade brand loyalty ftbl on the basis of two empirical studies that use samples from the u s and korea we provide evidence demonstrating that the manner in which ecv influence ftbl differs in the u s and korea in the u s ecv determine ftbl only indirectly via ftpb whereas in korea they determine ftbl directly as well as indirectly via ftce we discuss theoretical and managerial implications of these findings

mixed oligopoly with consistent conjectures abstract in this paper we consider a model of mixed oligopoly with conjectural variations equilibrium cve the agents conjectures concern the price variations depending upon their production output s increase or decrease we establish existence and uniqueness results for the conjectural variations equilibrium called an exterior equilibrium for any set of feasible conjectures to introduce the notion of an interior equilibrium we develop a consistency criterion for the conjectures referred to as influence coefficients and prove the existence theorem for the interior equilibrium understood as a cve with consistent conjectures to prepare the base for the extension of our results to the case of non differentiable demand functions we also investigate the behavior of the consistent conjectures in dependence upon a parameter representing the demand function s derivative with respect to the market price

the option value of advanced r d existing tools for making r d investment decisions cannot properly capture the option value in r d since many new products are identified as failures during the r d stages the possibility of refraining from market introduction may add a significant value to the npv of the r d project this paper presents new theoretical insight by developing a stochastic jump amplitude model in a real setting the option value of the proposed model depends on the expected number of jumps and the expected size of the jumps in a particular business the model is verified with empirical knowledge of current research in the field of multimedia at philips corporate research this way the gap between real option theory and the practice of decision making with respect to investments in r d is diminished

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

late stage pharmaceutical r d and pricing policies under two stage regulation 2016 elsevier b v we present a model combining the two regulatory stages relevant to the approval of a new health technology the authorisation of its commercialisation and the insurer s decision about whether to reimburse its cost we show that the degree of uncertainty concerning the true value of the insurer s maximum willingness to pay for a unit increase in effectiveness has a non monotonic impact on the optimal price of the innovation the firm s expected profit and the optimal sample size of the clinical trial a key result is that there exists a range of values of the uncertainty parameter over which a reduction in uncertainty benefits the firm the insurer and patients we consider how different policy parameters may be used as incentive mechanisms and the incentives to invest in r d for marginal projects such as those targeting rare diseases the model is calibrated using data on a new treatment for cystic fibrosis

real options in strategic investment games between two asymmetric firms abstract this paper examines strategic investment games between two firms that compete for optimal entry in a project that generates uncertain revenue flows under asymmetry on both the sunk cost of investment and revenue flows of the two competing firms we investigate the value of real investment options and strategic interaction of investment decisions compared to earlier models that only allow for asymmetry on sunk cost our model demonstrates a richer set of strategic interactions of entry decisions we provide a complete characterization of pre emptive dominant and simultaneous equilibriums by analyzing the relative value of leader s and follower s optimal investment thresholds in a duopoly market with negative externalities a firm may reduce loss of real options value by selecting appropriate pre emptive entry when one firm has a dominant advantage over its competitor both the dominant firm and dominated firm enter at their respective leader s and follower s optimal thresholds when the pre emptive thresholds of both firms happen to coincide the two firms enter simultaneously under positive externalities firms do not compete to lead

mixed oligopoly and spatial agglomeration abstract we investigate a mixed market where a state owned welfare maximizing public firm competes against profit maximizing private firms we use a circular city model with quantity setting competition in contrast to a pure market case discussed by pal 1998a spatial agglomeration of private firms always appears in equilibrium all private firms locate at the same point and the public firm locates at the opposite side we also find that this equilibrium pattern of the location is second best provided that output of each private firm cannot be controlled by the social planner jel classification h42 l13 oligopole mixte et agglomeration spatiale les auteurs examinent un marche mixte ou une entreprise publique possedee par l etat et cherchant a maximiser le niveau de bien etre est en concurrence avec des entreprises privees qui cherchent a maximiser leurs profits on utilise un modele de cite circulaire ou la concurrence se fait en choisissant la quantite produite en contraste avec le cas du marche parfait discute par pal 1998a l agglomeration spatiale des entreprises privees parait etre en equilibre toutes les entreprises privees se localisent au meme point et l entreprise publique se localise du cote oppose il appert que ce pattern d equilibre de localisation est un equilibre de second ordre compte tenu du fait que la production de chaque entreprise privee ne peut etre controlee par le planificateur social