A model of sequential investment

Avner Bar-Ilan, William C. Strange

Research output: Contribution to journalArticlepeer-review


This paper specifies a model of a two-stage sequential investment where the stages take time to complete. It presents algebraic solutions for an individual firm's optimal sequential investment with costless suspension, without suspension, in the intermediate case of costly suspension, and for aggregate investment. With suspension, the first-stage trigger is below the second-stage trigger for sufficiently long lags and high levels of output price uncertainty. Thus, the firm may carry out 'exploratory' investment. We also evaluate the comparative statics of investment, and show how the patterns of project costs and lags affect the incentive to invest.

Original languageEnglish
Pages (from-to)437-463
Number of pages27
JournalJournal of Economic Dynamics and Control
Issue number3
StatePublished - Mar 1998

Bibliographical note

Funding Information:
We thank two very helpful referees and Iain Cockburn for comments. This research was initiated while Strange was a visitor at the Department of Economics at the University of Haifa. Strange thanks the University of Haifa Economics Department, the Canadian Real Estate Research Bureau, the Real Estate Foundation of British Columbia, and the Social Sciences and Humanities Research Council of Canada for research support.


  • Lags
  • Sequential investment
  • Suspension

ASJC Scopus subject areas

  • Economics and Econometrics
  • Control and Optimization
  • Applied Mathematics


Dive into the research topics of 'A model of sequential investment'. Together they form a unique fingerprint.

Cite this