Morellec, ErwanGuo, XinMiao, Jianjun2010-04-242010-04-242010-04-24200510.1016/j.jet.2004.04.005https://infoscience.epfl.ch/handle/20.500.14299/49658Under the real options approach to investment under uncertainty, agents formulate optimal policies under the assumption that firms’ growth prospects do not vary over time. This paper proposes and solves a model of investment decisions in which the growth rate and volatility of the decision variable shift between different states at random times. A value-maximizing investment policy is derived such that in each regime the firm's investment policy is optimal and recognizes the possibility of a regime shift. Under this policy, investment is intermittent and increases with marginal q. Moreover, investment typically is very small but, in some states, the capital stock jumps. Implications for marginal q and the user cost of capital are also examined.InvestmentCapacity choiceRegime shiftstext::journal::journal article::research article