Optimal regime switching under risk aversion and uncertainty

echnology adoption is key for corporate strategy, often determining the success or failure of a company as a whole. However, risk aversion often raises the reluctance to make a timely technology switch, particularly when this entails the abandonment of an existing market regime and entry in a new one. Consequently, which strategy is most suitable and the optimal timing of regime switch depends not only on market factors, such as the definition of the market regimes, as well as economic and technological uncertainty, but also on attitudes towards risk. Therefore, we develop a utility-based, regime-switching framework for evaluating different technology-adoption strategies under price and technological uncertainty. We assume that a decisionmaker may invest in each technology that becomes available (compulsive) or delay investment until a new technology arrives and then invest in either the older (laggard) or the newer technology (leapfrog). Our results indicate that, if market regimes are asymmetric, then greater risk aversion and price uncertainty in a new regime may accelerate regime switching. In addition, the feasibility of a laggard strategy decreases (increases) as price uncertainty in an existing (new) regime increases. Finally, although risk aversion typically favours a compulsive and a laggard strategy, a leapfrog strategy may be feasible under risk aversion provided that the output price and the rate of innovation are sufficiently high

Sequential investment in renewable energy technologies under policy uncertainty

Although innovation and support schemes are among the main forces that drive investment in renewable energy (RE) technologies, both involve considerable uncertainty. We develop a real options framework to analyse the impact of technological, policy and electricity price uncertainty on the decision to invest sequentially in successively improved versions of a RE technology. Technological uncertainty is reflected in the random arrival of innovations, and policy uncertainty in the likely provision or retraction of a subsidy that takes the form of a fixed premium on top of the electricity price. We show that greater likelihood of subsidy retraction (provision) lowers (raises) the incentive to invest, and, by comparing a stepwise to a lumpy investment strategy, we show how an embedded option to adopt an improved technology version mitigates the impact of subsidy retraction on investment timing. Specifically, we show how stepwise investment facilitates earlier technology adoption compared to lumpy investment, and that, under stepwise investment, technological uncertainty accelerates technology adoption, thus further offsetting the incentive to delay investment in the light of subsidy retraction

Stepwise Green Investment under Policy Uncertainty

We analyse how market price and policy uncertainty, in the form of random provision or retraction of a subsidy, interact to affect the optimal time of investment and the size of a renewable energy (RE) project that can be completed in either a single (lumpy investment) or multiple stages (stepwise investment). The subsidy takes the form of a fixed premium on top of the electricity price, and, therefore, investment is subject to electricity price uncertainty. We show that the risk of a permanent retraction (provision) of a subsidy increases (decreases) the incentive to invest, yet lowers (raises) the amount of installed capacity, and that this result is more pronounced as the size of the subsidy increases. Additionally, we show that increasing the number of policy interventions lowers the expected value of a subsidy and the size of the project. Furthermore, we illustrate that, although an increase in the size of a subsidy lowers the relative value of the stepwise investment strategy, the expected value of a lumpy investment strategy is still lower than that of stepwise investment

Understanding the Canadian Domestic Security Apparatus: Bridging Public Opinion with the Government of Canada\u27s Security Initiatives against Terrorism

This paper explores some of the central factors in society that determine whether the Canadian public will support or oppose the Canadian government\u27s domestic security initiatives aimed at preventing terrorism. A recent surge in security awareness in the Western world spurred by the threat of global terrorism has seen the re-formulation of its security structures and the professionals they employ by using intensive surveillance methods and personal information collection previously restrained by law. Previous literature, primarily from the United States, has begun to illustrate the important role that trust and the media have on predicting whether a public will support counterterrorism policies that restrict civil liberties. In light of this, using the International Surveillance and Privacy Opinion Research Survey (2006), this thesis attempts to contribute to this range of literature from a Canadian perspective by exploring the role of trust, knowledge, and the media in predicting support or opposition for a more intensive security state and whether knowledge of these security infrastructures mediates their relationship. Bivariate and multivariate analyses reveal that trust in government is the strongest determinant of whether people will support counterterrorism policies. While media is also a significant predictor, it is found that trust, and not knowledge, seems to mediate the relationship of media on supporting these policies. Theoretical frameworks and policy implications are also discussed

Wave steering effects in anisotropic composite structures: direct calculation of the energy skew angle through a finite element scheme

A systematic expression quantifying the wave energy skewing phenomenon as a function of the mechanical characteristics of a non-isotropic structure is derived in this study. A structure of arbitrary anisotropy, layering and geometric complexity is modelled through Finite Elements (FEs) coupled to a periodic structure wave scheme. A generic approach for efficiently computing the angular sensitivity of the wave slowness for each wave type, direction and frequency is presented. The approach does not involve any finite differentiation scheme and is therefore computationally efficient and not prone to the associated numerical errors

Reconstructing the Complete Patent Bargain: The Doctrine of Equivalents

This paper provides a theoretical justification for the doctrine of equivalents in patent law that is based on the contractarian view of the patent grant