1. Presented by Jiyoon Chung
Pacheco de Almeida, Goncalo and Peter Zemsky (2003). The effect of time-to-build on strategic investment under uncertainty. Rand Journal of Economics, 34 (1):
Presented by Jiyoon Chung

2. Overview
Research question: Does time-to-build matter for the theory of strategic investment under uncertainty?
Model
Equilibrium analysis
Comparative statics
Conclusion

3. Model
A firm maximizes a weighted average of its expected period-II and –III revenues less the expected cost of investment.

4. Equilibrium Analysis Equilibrium Typology
Delay equilibrium: Both firms wait to invest.
Incremental Cournot equilibrium: Both firms make the same incremental investment.
Commit-delay equilibrium: One of the firms commits while the other delays investment.
Commit-incremental equilibrium: One of the firms commits, while the other makes an incremental investment.

5. Equilibrium Analysis
The magnitude of uncertainty determines which equilibrium exists. Without time-to-build,
If uncertainty great  Delay
If uncertainty low  Commit-delay
With time-to-build, an initial price premium exists
The tradeoff between commitment and flexibility is altered
If short time-to-build and low uncertainty  Commit-incremental
If long time-to-build and low uncertainty  Incremental Cournot

6. Comparative Statics If time-to-build increases,
Social welfare decreases
The extent to which firms exploit the option to wait decreases
The price premium decreases

7. Conclusion
For a sufficiently long time-to-build or sufficiently small uncertainty, Incremental Cournot is the unique equilibrium
Introducing time-to-build
Shifts (non-monotonically) the classic tradeoff between commitment and exploiting the option to wait
Gives rise to novel types of equilibria where firms make incremental investments
Links models of investment timing to the evolution of product prices