Investment timing, capacity choice and optimal floors and ceilings

• Type: Article in International Scientific Journal
• Date: 2022

Authors

Paxson, D (Author) Other; Paulo Jorge Pereira (Author) FEP; Rodrigues, Artur (Author) FEP

Journal

Title: Journal of Economic Dynamics and Control

Vol. 139

ISSN: 0165-1889

Indexing

ISI Web of Knowledge - 5 Citations

Scopus - 5 Citations

Other information

Authenticus ID: P-00W-MM1

DOI: 10.1016/j.jedc.2022.104430

Abstract (EN): We develop a model for determining the optimal timing and capacity choice of investment under floors and ceilings (collars). We study how a welfare maximizing finite-lived collar can be optimally designed. Our findings show that for a linear demand function, multiple collar arrangements are optimal, including pure floors and fixed price regimes. Departing from previous literature, our results suggest that pure ceiling regimes are not optimal. When the demand function is isoelastic, optimal schemes are not attainable.

Language: English

Type (Professor's evaluation): Scientific

No. of pages: 27