Jump to ContentJump to Main Navigation

The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Jürges, Hendrik / Ludwig, Sandra

Ed. by Auriol , Emmanuelle / Brunner, Johann / Fleck, Robert / Friebel, Guido / Mendola, Mariapia / Requate, Till / Tsui, Kevin / Wichardt, Philipp / Zulehner, Christine

4 Issues per year


IMPACT FACTOR 2013: 0.432
5-year IMPACT FACTOR: 0.710

SCImago Journal Rank (SJR): 0.956
Source Normalized Impact per Paper (SNIP): 0.734

VolumeIssuePage

Real Options, Conflicting Valuations, and Favoritism

Anil Arya1 / Jonathan Glover2

1Ohio State University,

2Carnegie Mellon University,

Citation Information: Topics in Economic Analysis & Policy. Volume 3, Issue 1, ISSN (Online) 1538-0653, DOI: 10.2202/1538-0653.1177, December 2003

Publication History

Published Online:
2003-12-01

Abstract

In this paper, limited managerial capacity gives rise to a timing option: agents can implement projects now-or-later. Because each agent cares only about the project he implements, while the principal cares about the projects undertaken in aggregate, the timing option may be valued differently by the principal and the agents. Under a fair assignment rule (one that treats the agents symmetrically), these conflicting valuations result in agents sometimes not implementing the principal's desired projects. We identify conditions under which the optimal assignment rule necessarily exhibits favoritism. Favoritism is beneficial because it provides appropriate incentives to the unfavored agent by reducing his option value of waiting.

Keywords: timing option; favoritism

Comments (0)

Please log in or register to comment.
Users without a subscription are not able to see the full content. Please, subscribe or login to access all content.