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Capacity expansion under regulatory uncertainty:A real options-based study in international container shipping

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  • Haehl, Christian
  • Spinler, Stefan
Abstract
We present a real options model for capacity expansion that introduces uncertainty about potential future regulation (regulatory uncertainty) and key characteristics of capacity decisions: investment with time to build, divestment, the option to charter, and operating flexibility. Regulatory uncertainty is modelled as a possible jump in operating, investment, and charter costs during the simulation horizon. We find that regulatory uncertainty with grandfathering (the extant fleet is exempt from compliance) promotes high up-front investment leading to excess capacity and increased emissions. However, regulatory uncertainty without grandfathering reduces investment and emissions and the use of more flexible capacity options, such as chartering.

Suggested Citation

  • Haehl, Christian & Spinler, Stefan, 2018. "Capacity expansion under regulatory uncertainty:A real options-based study in international container shipping," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 113(C), pages 75-93.
    • Handle: RePEc:eee:transe:v:113:y:2018:i:c:p:75-93
    DOI: 10.1016/j.tre.2018.01.003
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