Yes / We derive the optimal investment timing and real option value for a facility with price and quantity uncertainty, where there might be a government subsidy proportional to production quantity. Where the subsidy is proportional to the multiplication of the price and quantity, dimensionality can be reduced. Alternatively, we provide quasi-analytical solutions for different quantity subsidy arrangements: permanent (policy is certain); retractable; suddenly permanent; and suddenly retractable. Whether policy uncertainty acts as a disincentive for early investment depends on the type of subsidy arrangement. The greatest incentive for early investment is an actual retractable subsidy, a ‘flighty bird in hand’.
| Identifer | oai:union.ndltd.org:BRADFORD/oai:bradscholars.brad.ac.uk:10454/11544 |
| Date | 2015 February 1920 |
| Creators | Adkins, Roger, Paxson, D. |
| Source Sets | Bradford Scholars |
| Language | English |
| Detected Language | English |
| Type | Article, Accepted manuscript |
| Rights | © 2016 Wiley. This is the peer reviewed version of the following article: Adkins R and Paxson D (2016) Subsidies for Renewable Energy Facilities under Uncertainty. The Manchester School. 84(2): 222-250, which has been published in final form at http://dx.doi.org/10.1111/manc.12093. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving. |
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