Consider an agent who is attempting to maintain a given consumption level over time. in the face of a stochastic technology. He is permitted to borrow and lend at given rates of interest. The main results are: (i) if the borrowing rate of interest exceeds the lending rate. the expected net indebtedness of the agent must grow unboundedly large, unless the consumption target is attainable with at...

A competitive firm which chooses the timing of investment and optimal volume of debt is considered. The price of the firm’s output follows the geometric Brownian motion or more general jump-diffusion processes, and the firm takes an arbitrage free borrowing rate as given. The optimal timing of investment and volume of debt is computed, and it is shown that if the borrowing rate is close to the ...

This paper proposes a real options model for a duopoly faced with an exogenous entry of a third competitor that can expand the market. Usually market positions appear as a stable status quo situation. Competition exists while the duopoloy places are available and both firms fight for them, but after the entry of the follower, no more competitive damages or benefits are considered. The proposed ...

This study examines how stakeholders exert an influence on product design decisions in the presence of exogenous uncertainty. Hitherto, research has traditionally viewed firms as one entity, and has prescribed an “optimal” product design decision at firm level. Inspired by field studies at Nokia and Philips, our research seeks to open the “black box” of R&D organizations by comparing design out...

Does the banking sector matter for propagation of uncertainty? We apply local projections to study dynamic response U.S. real GDP exogenous changes in uncertainty conditional on liquidity sector. find that has a stronger impact when is less liquid. Additional analyses show bank lending more adversely affected case low and external finance-dependent sectors respond markedly shocks. conclude prov...

We analyze strategic relationships between buyers and sellers in markets with relationship-specific costs and exogenous dynamic uncertainty by investigating the scenario wherein a representative buyer trades with two sellers in a different country. We show that under exchange rate uncertainty, relationship-specific costs may either raise or lower competition and the level of prices in long-term...

Recessions are associated with increases in uncertainty. This paper shows that a simple model of creative destruction, in which new productive businesses push out old obsolete ones, produces increases in measured uncertainty during recessionary periods even without time-variation in second moments of exogenous shocks. Moreover, the suggested channel is also borne out by the data. Using an estab...

When an agent can operate at diierent levels of autonomy, factors in the environment, the domain, and the goals of the agent innu-ence what level of autonomy the agent should exhibit. However, research into what metrics are appropriate and what environmental factors might justify changes in autonomy are scarce. This paper attempts to establish the relationships between uncertainty in the enviro...