Summary.
This paper describes conditions under which one investment project dominates a second project in terms of net present value, irrespective of the choice of the discount rate. The resulting partial ordering of projects has certain similarities to stochastic dominance. However, the structure of the net present value function leads to characterizations that are quite specific to this context. Our theorems use Bernstein's (1915) innovative results on the representation and approximation of polynomials, as well as other general results from the theory of equations, to characterize the partial ordering. We also show how the ranking is altered when the range of discount rates is limited or the rate varies period by period.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Author information
Authors and Affiliations
Additional information
Received: January 5, 2002; revised version: October 29, 2002
RID="*"
ID="*" We thank Robert Driskill, Andrea Maneschi, Roy Radner, and participants of seminars at NYU, Notre Dame, Purdue, and Washington University for helpful comments. The present version of the paper has benefited from comments by a referee and the editor. Foster is grateful for support from the John D. and Catherine T. MacArthur Foundation through its network on Inequality and Poverty in Broader Perspective.
Correspondence to: T. Mitra
Rights and permissions
About this article
Cite this article
Foster, J., Mitra, T. Ranking investment projects. Econ Theory 22, 469–494 (2003). https://doi.org/10.1007/s00199-002-0339-y
Issue Date:
DOI: https://doi.org/10.1007/s00199-002-0339-y