Investing in Biogas: Timing, Technological Choice and the Value of Flexibility from Inputs Mix

38 Pages Posted: 4 Aug 2009

See all articles by Luca Di Corato

Luca Di Corato

Ca Foscari University of Venice - Dipartimento di Economia

Michele Moretto

University of Padua, Dep of Economics and Management

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Date Written: July 2009

Abstract

In a continuous-time framework we study the technology and investment choice problem of a continuous co-digestion biogas plant dealing with randomly fluctuating relative convenience of input factor costs. Input factors enter into the productive process together mixed according to a given initial rule. Being inputs relative convenience stochastically evolving, a successive revision of the initial rule may be desirable. Hence, when the venture starts the manager may or may not install a flexible technology allowing for such option. Investment is irreversible and flexibility is costly. The problem is solved determining in the light of future prospects the optimal revision and then playing backward fixing the investment timing rule.

Keywords: factor proportions, technological choice, flexibility, real options, alternative energy source

JEL Classification: C61, D24, Q42

Suggested Citation

Di Corato, Luca and Moretto, Michele, Investing in Biogas: Timing, Technological Choice and the Value of Flexibility from Inputs Mix (July 2009). CESifo Working Paper Series No. 2729, Available at SSRN: https://ssrn.com/abstract=1443084 or http://dx.doi.org/10.2139/ssrn.1443084

Luca Di Corato (Contact Author)

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy

Michele Moretto

University of Padua, Dep of Economics and Management ( email )

via Del Santo 33
Padova, 35123
Italy
+39 049 8274265 (Phone)
+39 049 8274211 (Fax)

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