TY  - JOUR
AU  - Dixit,Avinash K.
AU  - Pindyck,Robert S.
TI  - Expandability, Reversibility, and Optimal Capacity Choice
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6373
PY  - 1998
Y2  - January 1998
UR  - http://www.nber.org/papers/w6373
L1  - http://www.nber.org/papers/w6373.pdf
N1  - Author contact info:
Avinash Dixit
Department of Economics
Princeton University
Princeton, NJ  08544-1017
E-Mail: dixitak@princeton.edu

Robert S. Pindyck
MIT Sloan School of Management
100 Main Street, E62-522
Cambridge, MA  02142
Tel: 617/253-6641
Fax: 617/258-6855
E-Mail: RPINDYCK@MIT.EDU
AB  - We develop continuous-time models of capacity choice when demand fluctuates stochastically, and the firm's opportunities to expand or contract are limited.  Specifically consider costs of investing or disinvesting that vary with time, or with the amount of capacity already installed.  The firm's limited opportunities to expand or contract create call and put options on incremental units of capital; we show how the values of these options affect the firm's investment decisions.
ER  -