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Chinese Journal of Management Science ›› 2014, Vol. 22 ›› Issue (9): 26-32.

• Articles • Previous Articles     Next Articles

Study on Oligopoly Power Producer’s Capacity Investment under Policy Uncertainty

ZHANG Xin-hua, YE Ze   

  1. School of Economics and Management, Changsha University of Science and Tchnology, Changsha 410114, China
  • Received:2012-08-26 Revised:2013-01-23 Online:2014-09-20 Published:2014-09-27

Abstract: Investment policy is a major element influencing capacity investment strategy,but is uncertain to power producers. In order to investigate the influence, a capacity investment model is proposed under demand and policy uncertainties based on real option theory. The model is solved, and the two investment thresholds are simulated with some basic data of existing literature numerically. The results indicate that power producer will delay investing if the ratio of subsidy is lower, and will preempt investing if the ratio of subsidy is higher, with higher expectation of cancelling investment subsidy, and the highest investment enthusiasm will appear when the subsidy will be cancelled immediately. Moreover, power producer will delay investing with larger possibility of implementing investment subsidy, and will delay investing as far as possible when the subsidy will be implemented immediately. The paper provides a theoretical way to explore the optimal investment policies in basic industries to some extent.

Key words: real option, capacity investment, policy uncertainty, power market

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