Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154982
Authors: 
Moretto, Michele
Year of Publication: 
1999
Series/Report no.: 
Nota di Lavoro, Fondazione Eni Enrico Mattei 28.1999
Abstract: 
The paper studies the effect of scale economies on the optimal capacity adjustment of a mutiplant firm. It is shown that with increasing economies of scale plants are ranked in decreasing order, after which the optimal choice is to scrap the largest one. On the contrary, if there are decreasing economies of scale the optimal policy would be to wait before abandoning intermediate plants. That is, decreasing economies of scale amplify the effect of uncertainty on disinvestment and tend to increase the plant's life.
Subjects: 
Exit
Option value
Irreversibility
JEL: 
D92
L11
Document Type: 
Working Paper

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