Whalley, A. Elizabeth. (2011) Optimal R&D investment for a risk-averse entrepreneur. Journal of Economic Dynamics and Control, Volume 35 (Number 4). pp. 413-429. ISSN 0165-1889

Full text not available from this repository.

Abstract

Entrepreneurs investing in R&D projects face technical uncertainty associated with the cost to completion of the project, which is idiosyncratic and inherently unhedgeable. We extend existing real options models of R&D investment to incorporate the cost of bearing this unhedgeable risk and find it decreases risk-averse entrepreneurs' valuations of R&D projects and increases the minimum NPVs required for continued investment in R&D (threshold NPVs) relative to 'unpriced risk' values and threshold NPVs. As in the 'unpriced risk' case, for less risk-averse entrepreneurs with small R&D projects, threshold NPVs remain negative and decrease with technical uncertainty. However, for sufficiently risk-averse entrepreneurs with sufficiently large R&D projects, threshold NPVs can become positive and increase with technical uncertainty. (C) 2010 Elsevier B.V. All rights reserved.

Item Type:	Journal Article
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HF Commerce
Divisions:	Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School
Library of Congress Subject Headings (LCSH):	Research and development projects, Risk, Utility theory, Entrepreneurship
Journal or Publication Title:	Journal of Economic Dynamics and Control
Publisher:	Elsevier Science BV
ISSN:	0165-1889
Date:	April 2011
Volume:	Volume 35
Number:	Number 4
Number of Pages:	17
Page Range:	pp. 413-429
Identification Number:	10.1016/j.jedc.2009.11.009
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Restricted or Subscription Access
URI:	http://wrap.warwick.ac.uk/id/eprint/41340

Data sourced from Thomson Reuters' Web of Knowledge

Request changes to a record

Actions (login required)

View Item