TY - JOUR
T1 - Optimal Procurement and Investment in New Technologies under Uncertainty
AU - Arve, Malin
AU - Zwart, Gijsbert
PY - 2023/2
Y1 - 2023/2
N2 - We study a buyer’s optimal investment strategy for new technologies when costs evolve stochastically and are private information to the suppliers. In a real option setting, we show how the asymmetric information on the stochastic variables optimally distorts technology choice and investment timing. We find that with multiple technologies, asymmetric information may delay or speed up investment, compared to the first-best real option benchmark. We also suggest a payment structure that implements the buyer’s optimal investment timing as a Vickrey-type auction.
AB - We study a buyer’s optimal investment strategy for new technologies when costs evolve stochastically and are private information to the suppliers. In a real option setting, we show how the asymmetric information on the stochastic variables optimally distorts technology choice and investment timing. We find that with multiple technologies, asymmetric information may delay or speed up investment, compared to the first-best real option benchmark. We also suggest a payment structure that implements the buyer’s optimal investment timing as a Vickrey-type auction.
U2 - 10.1016/j.jedc.2023.104605
DO - 10.1016/j.jedc.2023.104605
M3 - Article
SN - 0165-1889
VL - 147
JO - Journal of Economic Dynamics and Control
JF - Journal of Economic Dynamics and Control
M1 - 104605
ER -