Template-Type: ReDIF-Paper 1.0
Author-Name: Doriana Ruffino
Author-X-Name-First: Doriana 
Author-X-Name-Last: Ruffino
Author-Email: rdoriana@bu.edu
Author-Workplace-Name: Boston University, Department of Economics

Author-Name: Jonathan Treussard	
Author-X-Name-First: Jonathan 
Author-X-Name-Last:   Treussard
Author-Email: jtreussa@bu.edu
Author-Workplace-Name: Boston University, Department of Economics

Title:A Study of Inaction in Investment Games via the
Early Exercise Premium Representation

Abstract:This paper examines strategic investment in the context of a duopolistic continuous-
time real options game. Our contribution is twofold, economic and methodological.
The former is the recognition that, under ?xed costs of investment and time-to-build,
the ?rm pays a fraction of the implicit strike price to its competitor in the form of
transferred foregone consumer demand. The latter is the introduction of the early
exercise premium representation as a valuable device for the characterization of optimal
exercise policies in real options games. We ?nd that positive capital depreciation,
technology improvement, and harm e¤ects to the low-technology producer are not
su˘ cient to generate equilibria characterized by action.

Length:32 pages
Creation-Date: 2006-07
Revision-Date: 
Publication-Status:
File-URL: http://www.bu.edu/econ/workingpapers/papers/InactionviaEEP_RuffinoTreussard0706.pdf
File-Format: Application/pdf
File-Function: 
Number: WP2006-040
Classification-JEL:
Keywords:
Handle: RePEc:bos:wpaper:WP2006-040