Sammendrag
In Norway there is a large potential for small run-of-river hydropower plants. Having access to an investment opportunity in such a plant may be considered as holding a real option to invest. Using data from 229 small hydropower projects, which were granted licenses to construct hydropower plants in the period 2002 to 2009, we study the decision making and behavior of the investors. More specifically, we test whether investments did actually occur at the optimal point in time predicted by an option-based model. This is tested against the alternative hypothesis: that investments are made when the discounted value of future cash flows are equal to or exceed investment outlays, which is the decision rule suggested by (a naïve version of) the net present value approach.
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