Notes on the Value of Information about the Arrival Date of a New Technology (Revised Version)

Ponssard, J.-P. (1974). Notes on the Value of Information about the Arrival Date of a New Technology (Revised Version). IIASA Working Paper. IIASA, Laxenburg, Austria: WP-74-054

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Abstract

We consider an investment problem in which one has to decide on which technology to install to satisfy a growing demand, given that at some date in the future some new technology will become available. More specifically, we assume that there are two existing technologies -- the first one with a high capital cost and a low production cost, and the second one with a low capital cost and a high production cost. Presumably the first one would be chosen if the time horizon is long and the second one if it is short. Because of uncertainty on the arrival date of the third technology this time horizon is unknown.

The objective of these notes 18 to provide some insights about the expected value of information on the arrival date of the new technology under simple analytical assumptions.

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