There is wide debate over the impact of uncertainty on firm behavior, due to the difficulty both of measuring uncertainty and of identifying causality. This paper takes three steps that attempt to address these challenges. First, we develop an instrumental variables strategy that exploits firms'...

Many economic variables of interest exhibit a tendency to revert to predictable long-run levels. However, mean reverting processes are rarely used in investment models in the literature. In most models, geometric Brownian motion processes are used for tractability. In this paper, a firm's entry...

The conventional wisdom that housing prices are the present value of future rents ignores the fact that unlike dividends on stocks, rent is not discretionary. Housing price uncertainty can affect household property investments, which in turn affect rent. By extending the theory of investment...

In this paper we analyse the impact of policy uncertainty on foreign direct investment strategies. The paper follows the real options approach, which allows to investigate the value to a firm of waiting to invest and/or disinvest, when payoffs are stochastic due to political uncertainty and...

In this paper we analyse the impact of policy uncertainty on foreign direct investment strategies. The paper follows the real options approach, which allows to investigate the value to a firm of waiting to invest and/or disinvest, when payoffs are stochastic due to political uncertainty and...

Investment in infrastructure such as the information and communication technology sector requires large, substantial amounts, most of which are sunk or irreversible. Uncertainty of market demand, competition, costs and public policy complicates the investment decision process. This paper...

In this paper we analyse the impact of policy uncertainty on foreign direct investment strategies. We also consider the impact of economic integration upon FDI decisions. The paper follows the real options approach, which allows investigating the value to a firm of waiting to invest and/or...

This paper analyzes the impact of different types of barriers on the decision to invest using a simple framework based on stochastic discount factors. Our intuitive approach proposes an alternative to the real options methodology that does not rely on the “smooth-pasting condition.” An...

The consumption tax affects the consumer, but also affects the wealth of the producer because of the tax incidence effect. It affects cash flows from corporate investment, bears influence on capital budgeting choices on investment timing and financing and the respective agency conflicts between...

Network expansions in power markets usually lead to investment decisions subject to substantial irreversibility and uncertainty. Hence, investors need valuing the flexibility to change decisions as uncertainty unfolds progressively. Real option analysis is an advanced valuation technique that...