Decision-making in sequential projects: expected time-to-build and probability of failure

摘要: The main purpose of this paper is to account for the two most basic options in context a sequential investment project, option adjust speed and exit option. Current models ignore role minimal rate that must be sustained as long project not abandoned. In real projects, positive provides an incentive (irreversible) from project. On other hand, still leaves room adjustment speed. Therefore, with realistic (non-extreme) assumptions about should both, we set up equations dual-option scenario continuous (PDE) framework. resulting model characterized by presence thresholds describing optimal decision-making. We provide robust numerical procedure determination both thresholds. Our analysis reveals creates endogenous fast completion complements corresponding exogenous incentives. This “incentive-enhancement effect” reflected fundamental statistical characteristics As direct consequence effect, increase will always lead reduction expected time-to-build. Another, striking can also have effect on probability failure (default-risk). occurs under condition low completion, represented e.g. poor market expectations product developed.