Optimal exercise of jointly held real options: A Nash bargaining approach with value diversion ?
We model optimal exercise of real options held jointly by two (or more) firms. The exercise decision is always efficient if it precedes bargaining. In the opposite case, timing is generally only efficient if cash payments are allowed. With value diversion, the second-best outcome may require a contract that is not optimal in former cases. The analyzed decision framework helps to understand a range of empirical regularities.
real options decision analysis investment timing nash bargaining solution agency problem