Strategic real options

• 成果类型: Article
• 署名作者: Kolb, Aaron M.
• 署名单位: Indiana University System; IU Kelley School of Business; Indiana University Bloomington
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2019.05.008
• 发表日期: 2019
• 页码: 344-383
• 关键词: real options; Persuasion games; Hidden investment; continuous time; Resetting barrier; Skew Brownian motion

摘要

I study hidden investment in quality in a dynamic persuasion game. A seller, such as a project manager or startup company, controls an asset and wants to convince a potential buyer, such as an acquiring company or a regulator, that it has high quality. The buyer observes exogenous news with quality-dependent drift and holds a call option on the asset; the seller is privately informed about quality and can wait (at a flow cost), upgrade (at a fixed cost) or exit the market. For low upgrade costs, multiple equilibria exist and exhibit novel reputational dynamics resetting barriers and skew Brownian motion, a generalization of a reflected stochastic process. In one type of equilibrium, a seller with low quality waits until his reputation hits rock bottom and then upgrades with some probability, inducing upward reputational jumps in equilibrium; the seller may exit at an intermediate reputation. In a second type, the low quality seller mixes over exiting at low reputations and upgrading in an intermediate sweet spot region. The results suggest a social benefit to setting high expectations for effort when agents start with low reputations and help explain why agents respond to adversity in drastically different ways across environments. (C) 2019 Elsevier Inc. All rights reserved.