The General Flexibility to Switch: Real Options Revisited

摘要: We present a simple analysis of the generic flexibility to switch between alternative technologies or operating "modes." The firm can select projects based on inflexible (rigid) technologies, flexible project that allows for switching mode, possibly at some cost. Without costs, value be seen as rigid plus sum values options in future periods. presence however, creates compoundness effect may make option additivity break down. resulting decision rule reflects persistence hysteresis where, even though immediate seem attractive, it long-term optimal wait. This general framework subsumes special cases most other known real options. defer investments, expand contract production, temporarily shut down and restart operations, abandon salvage, default during construction are revisited. also finds applications manufacturing systems capital investments.