DSpace@MIT

We show that comovements of individual stock prices cannot be justified by economic fundamentals. This finding is a rejection of the present value model of security valuation. Unlike other tests of this model, ours is ...

What is the likelihood that the U.S. will experience a devastating catastrophic event over the next few decades – something that would substantially reduce the capital stock, GDP and wealth? What does the possibility of ...

We develop continuous-time models of capacity choice when demand fluctuates stochastically, and the firm's opportunities to expand or contract are limited. Specifically, we consider costs of investing or disinvesting that ...

I examine the behavior of inventories and their role in the short-run dynamics of commodity production and price. Competitive producers of a storable commodity react to price changes by balancing costs of changing production ...

The Standard framework in which economists evaluate environmental policies is cost-benefit analysis, so policy debates usually focus on the expected flows of costs and benefits, or on the choice of discount rate. But this ...

Most investment expenditures have two important characteristics. First, they are largely irreversible; the firm cannot disinvest, so the expenditures are sunk costs. Second, they can be delayed, allowing ...

We re-examine the basic investment problem of deciding when to incur a sunk cost to obtain a stochastically fluctuating benefit. The optimal investment rule satisfies a trade-off between a larger versus a later net benefit; ...

This paper provides a simple introduction to the new option view of investment. We explain the shortcomings of the orthodox theory, and then outline the basic ideas behind the option framework. Several industry examples ...

Because of the uncertainties and irreversibilities that are often inherent in environmental degradation, its prevention, and its economic consequences, environmental policy design can involve important problems of timing. ...

I examine the risk/return tradeoff for environmental investments, and its implications for policy choice. Consider a policy to reduce carbon emissions. To what extent does the value of such a policy depend on the expected ...