The Value of Green Energy: Optimal Investment in Mutually Exclusive Projects and Operating Leverage

Jerome Detemple; Yerkin Kitapbayev

doi:10.1093/rfs/hhz097

The Value of Green Energy: Optimal Investment in Mutually Exclusive Projects and Operating Leverage

Jerome Detemple, Yerkin Kitapbayev

Mathematics

Questrom School of Business

Research output: Contribution to journal › Article › peer-review

13 Scopus citations

Abstract

We study investments in exclusive projects with different cost structures. Our analysis incorporates the possibility of producing a stochastic revenue stream from two alternative technologies with a stochastic variable cost and a fixed cost, respectively, and accounts for project managers' endogenous operating decisions. The optimal investment decision is characterized by two possibly nonmonotone boundaries. We examine the effect of operating leverage on managerial policies, investment decisions, and values and carry out an application to power generation projects. We assess the impact of knowledge acquisition, that is, investments in growth options.

Original language	British English
Pages (from-to)	3307-3347
Number of pages	41
Journal	Review of Financial Studies
Volume	33
Issue number	7
DOIs	https://doi.org/10.1093/rfs/hhz097
State	Published - 1 Jul 2020

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The Value of Green Energy: Optimal Investment in Mutually Exclusive Projects and Operating Leverage

Abstract

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