| dc.description.abstract | The relationship between uncertainty and managerial flexibility is particularly crucial in addressing
capital projects. We consider a firm that can invest in a project in either a single
(lumpy investment) or multiple stages (stepwise investment) under price uncertainty and has
discretion over not only the time of investment but also the size of the project. We confirm
that, if the capacity of a project is fixed, then lumpy investment becomes more valuable than a
stepwise investment strategy under high price uncertainty. By contrast, if a firm has discretion
over capacity, then we show that the stepwise investment strategy always dominates that of
lumpy investment. In addition, we show that the total amount of installed capacity under a
stepwise investment strategy is always greater than that under lumpy investment. | nb_NO |
