Investment strategy for R&D project with incomplete information

The article developed a very general investment strategy model for the control of R&D project that takes an uncertainty over their implementation phase apart from the underlying asset or cash-flows uncertainty and information costs regarding the project cash-flows under incomplete information. The paper presents the optimal investment rules, and show that the competition erodes the investment option value, thus the investment trigger is decrease. In particular, when the number of competitive firms is large enough, the traditional net present value rule becomes approximately correct. Finally, the paper discussed the effect of the implementation parameter, the intensity of the implementation uncertainty resolution, information cost and the probability of competitor investment on the optimal investment trigger, respectively.