Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/118016
Authors: 
Moretto, Michele
D'Alpaos, Chiara
Year of Publication: 
2004
Series/Report no.: 
Nota di Lavoro, Fondazione Eni Enrico Mattei 140.2004
Abstract: 
We analyze the optimal investment strategy of a monopolist which has subscribed a concession contract to provide a public utility, i.e. water service. We present a strategic model in which a monopolist chooses both the timing of the investment and the capacity. We focus not only on the value of the immediate investment, but rather on the value of the investment opportunity. We then extend the model to two interdependent projects, where investing in the first project provides the opportunity to acquire the benefits of the new investment by making a new outlay. We show that flexibility to defer an investment may generate, ceteris paribus, additional profits which may induce positive effects in terms of policy and consumers surplus.
Subjects: 
Irreversible investment
Flexibility to defer
Capacity expansion choice
JEL: 
D81
G31
L95
Document Type: 
Working Paper

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