Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/118116
Authors: 
Moretto, Michele
Panteghini, Paolo M.
Scarpa, Carlo
Year of Publication: 
2003
Series/Report no.: 
Nota di Lavoro, Fondazione Eni Enrico Mattei 80.2003
Abstract: 
In this article we analyse the effects of different regulatory schemes (price cap and profit sharing) on a firm's investment of endogenous size. Using a real option approach in continuous time, we show that profit sharing does not affect a firm's start-up decision relative to a pure price cap scheme. Unless the threshold after which profit sharing intervenes is very high, however, introducing a profit sharing element delays further investments: this decreases the present value of total investment. We also evaluate the reduction in the firm's value due to profit sharing, linking this reduction to the option value of future investments.
Subjects: 
Regulation
Investment
Profit sharing
Real options
RPI-x
JEL: 
L51
D81
D92
G31
Document Type: 
Working Paper

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