We thank Peter Kort, as well as seminar participants at the 15th Annual International Conference on Real Options in Turku, Finland, the University of York, Hull University Business School, and the INFORMS Annual Meeting in San Francisco for helpful comments. We gratefully acknowledge the helpful comments received from the Editor (Riedel) and two anonymous referees. All errors are ours.
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We analyse the short-time work (STW) regulations that several OECD countries introduced after the 2007 financial crisis. We view these measures as a collection of real options and study the dynamic effect of STW on the endogenous liquidation decision of the firm. While STW delays a firm’s liquidation, it is not necessarily welfare enhancing. Moreover, it turns out that firms use STW too long. We show (numerically) that providers of capital benefit more than employees from STW. Benefits for employees can even be negative. A typical Nordic policy performs better than a typical Anglo-Saxon policy for all stakeholders.