We provide a strategic rationale for growth options under uncertainty and imperfect competition. In a market with strategic competition, investment confers a greater capability to take advantage of future growth opportunities. This strategic advantage leads to the capture of a greater share of the market, either by dissuading entry or by inducing competitors to "make room" for the stronger competitor. As a result of this strategic effect, payoffs are in a rough sense more convex than in the case of no investment in a growth option. When the strategic advantage is strong, increased uncertainty encourages investment in growth options: higher uncertainty means more opportunity rather than simply larger risk. If the strategic effect is weak, the reverse is true. On the other hand, an increase in systematic risk discourages the acquisition of growth options. Our results contradict the view that volatility is a strong disincentive for investment.Strategic Investment, Growth Options, Investment Under Uncertainty, Real Options

We analyze politically motivated privatization in a bipartisan environment. When median-class voters a priori favor redistributive policies, a strategic privatization program allocating them enough shares can induce a voting shift away from left-wing parties whose policy would reduce the value of shareholdings. To induce median-class voters to buy enough shares to shift political preferences, strategic rationing and underpricing is often necessary. In the extreme, this may lead to free share distribution and voucher privatization. Shifting voting preferences becomes impossible when strong ex ante political constraints require large upfront transfers to insiders or when social inequality is extreme. (JEL D72, L33, P16, P35)

We explore paternal social anxiety as a specific risk factor for childhood social anxiety in a rational optimization model. In the course of human evolution, fathers specialized in external protection (e.g., confronting the external world) while mothers specialized in internal protection (e.g., providing comfort and food). Thus, children may instinctively be more influenced by the information signaled by paternal versus maternal behavior with respect to potential external threats. As a result, if fathers exhibit social anxiety, children interpret it as a strong negative signal about the external social world and rationally adjust their beliefs, thus becoming stressed. Under the assumption that paternal signals on social threats are more influential, a rational cognitive inference leads children of socially anxious fathers to develop social anxiety, unlike children of socially anxious mothers. We show in the model that mothers cannot easily compensate for anxious paternal behavior, but choose to increase maternal care to maintain the child’s wellbeing. We discuss research directions to test the proposed model as well as implications for the prevention and treatment of child social anxiety.

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