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Flexibility and Strategy in Resource Allocation

Year Group 1998/99

Research theme group on the economical subject of resource allocation or project appraisal under uncertainty.

About the topic

The real-options theme group at NIAS provided a group of leading scholars and young academics with an opportunity to work together for a sustained period of time in an environment conducive to brainstorming new ideas, addressing the existing problems in the field, filling the gaps and developing further applications to give a boost to the new but rapidly growing area of ‘real options’ within financial economics.
Our research dealt primarily with the classical economics subject of resource allocation or project appraisal under uncertainty, particularly with the value of managerial operating flexibility and strategic interactions in the form of corporate real options. Similar to options on financial securities, real options involve discretionary decisions or rights, with no obligation, to acquire or exchange the value of one alternative (asset) for a specified alternative value (price). Valuation of real options, such as to defer, expand, contract, abandon, switch use, or otherwise alter a capital investment or a contingent decision plan, has brought a revolution to modern corporate resource allocation.
The Annual International Conference on Real Options that took place at NIAS on 7-8 June testified to the fact that real options concepts and tools have been applied successfully in business decisions or are currently being considered by leading firms in various industries. Having proved their value in these settings, real options concepts have the potential to be applied in a variety of other contexts not only in economics and management, but also in public policy, medical decision-making, political science, sociology, and elsewhere.