Title: The right to choose: political decisions and environmental investments

Authors: David Mueller

Addresses: Management Accounting and Control, Brandenburg University of Technology Cottbus-Senftenberg, P.O. Box 101344, D-03013 Cottbus, Germany

Abstract: Incorporating real option modelling into the valuation of ecological investments and decisions has become widely accepted in recent years. This welcome broadening suffers from one limitation as all papers assume that the decision-maker knows which option he or she has at his or her disposal: an investment option or an abandonment option. Environmental related investment decisions depend very often on political decisions which will be made on a specific date in the future and may change the general direction of environmental policy. From the investor's viewpoint, it is not clear how this decision will affect his investment, as it is possible that he must invest or disinvest after the political decision. Therefore, the aim of this paper is twofold: first, the structure of such investment decisions will be discussed, and second, a chooser option model will be presented and analysed for the first time.

Keywords: real options models; chooser options; investment under uncertainty; policy uncertainty; decision making; political decisions; environmental investment; ecological investments; investment decisions.

DOI: 10.1504/IJISD.2016.077501

International Journal of Innovation and Sustainable Development, 2016 Vol.10 No.3, pp.219 - 236

Received: 16 Aug 2014
Accepted: 20 May 2015
Published online: 04 Jul 2016 *

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