Capacity investments and technology decisions under regulatory uncertainty

Abstract

Understanding the capacity investment and technology decisions is vital for a firm particularly due to the fact that not meeting regulatory restrictions or insufficient investments could hurt the firm in the long run. Our aim in this paper is to study the investment decisions of companies considering potential risks of regulatory uncertainties that could alter previous investment decisions. We consider a firm facing random demand and uncertainties in the design regulatory standards. We find the firm's capacity investments and technology selection decisions to mitigate potential risks of regulatory uncertainties and demand uncertainties.