Finance and Economics after the Dotcom Crash
Wed, 02 Jan 2002 10:13:22 -0800
> The problem is translating that math to a specific R&D project or even to a
> small number of them. It can't be done. If you drill enough holes in the
> ground in Texas, you will find oil; and if you do enough R&D, you will get
> something worthwhile. But you can't be certain of any one hole or any one
> project--you can speak reliably only of the return on a large portfolio.
So what are the betas for R&D versus
physical and financial assets? Return
alone, when the risks are not similar,
is a poor comparison.*
It sounds like we need something which
is intermediate between expenses (those
costs we believe to be sunk) and assets
(those amounts we expect a return upon).
How do oil companies treat exploration?
Insurance is a way to turn the opposite
set of high-variance outcomes into fixed
liabilities; what is the equivalent for
the asset side? Dividend yields?
Accounting seems very good for handling
values after the die has been cast, but
not so hot beforehand. Does traditional
accounting even work well for options or
other such instruments?
* Lev may have dealt with this issue.
I'll check out his papers whenever I
next boot Windows, or run across them