Dynamic Stability of Cooperative Investment Under Uncertainty

Modeling Cooperative and Noncooperative Incentives in Investment Projects: A Novel Approach Using Cooperative Game Theory and Real Options Theory In “Dynamic Stability of Cooperative Investment under Uncertainty,” Ketelaars, Borm, and Kort study an investment project involving multiple stakeholders. The research was prompted by the fact that many infrastructure projects, such as Feyenoord City in Rotterdam, Netherlands, and the new Berlin airport, failed or were significantly delayed. Recognizing that the various stakeholders have outside options, the authors combine concepts from cooperative game theory and real options to analyze a coalitional and dynamic stability concept. They characterize the proportional investment scheme as the scheme that maximizes total project value and results in the earliest investment timing. They show that dynamic stability can be present when the market is stable and when the market is growing and volatile. However, the proportional investment scheme is more sensitive to dynamic instability in a market with high profit growth and low profit uncertainty, or vice versa.