The Effects of Implementation Delay on Decision-Making Under Uncertainty

Abstract

In this paper, we accomplish two objectives: First, we provide a new mathematical characterization of the value function for impulse control problems with implementation delay and present a direct solution method that differs from its counterparts that use quasi-variational inequalities. Our method is direct, in the sense that we do not have to guess the form of the solution and we do not have to prove that the conjectured solution satisfies conditions of a verification lemma. Second, by employing this direct solution method, we solve two examples that involve decision delays: an exchange rate intervention problem and a problem of labor force optimization.