  The energy and material processing industries are traditionally characterized
by very large-scale physical capital that is custom-built with long lead times
and long lifetimes. However, recent technological advancement in low-cost
automation has made possible the parallel operation of large numbers of
small-scale and modular production units. Amenable to mass-production, these
units can be more rapidly deployed but they are also likely to have a much
quicker turnover. Such a paradigm shift motivates the analysis of the combined
effect of lead time and lifetime on infrastructure investment decisions. In
order to value the underlying real option, we introduce an optimal multiple
stopping approach that accounts for operational flexibility, delay induced by
lead time, and multiple (finite/infinite) future investment opportunities. We
provide an analytical characterization of the firm's value function and optimal
stopping rule. This leads us to develop an iterative numerical scheme, and
examine how the investment decisions depend on lead time and lifetime, as well
as other parameters. Furthermore, our model can be used to analyze the critical
investment cost that makes small-scale (short lead time, short lifetime)
alternatives competitive with traditional large-scale infrastructure.
