| Abstract: | Until now, policy recommendations and decisions have been based on the Net Present Value (NPV) rule. However, the NPV rule disregards the lost value of flexibility when making decisions with irreversible consequences. Real options theory naturally incorporates these elements. Policy recommendations based on real options theory will, therefore, improve NPV-based policy recommendations. The real options approach will, as a result, have consequences for policymakers'' decisions, firms'' interests, and consumer welfare. In this project, we will take a real-options approach with respect to the clearing or blocking of mergers, state aid, licensed entry fees, and regulation of vertically integrated firms.- |