Business Decision-Making under Uncertainty: Evidence from Employment and Number of Businesses

Arbeitspapier

Using the framework provided by the asymmetric-information and real-options theories, we examine the impact of uncertainty on firms' decisions and market outcomes. We construct alternative measures of uncertainty based on survey of professional forecasters and our estimation of regression-based forecasting models for GDP growth, inflation, S&P500 stock price index, and fuel prices. Our results indicate that greater uncertainty has a negative impact on growth of employment and the number of businesses, and the effects are primarily felt by relatively smaller businesses. The impact on large businesses are generally non-existent or weaker. Our results suggest that to truly understand the effects of uncertainty on firms' decisions, we need to focus on the relatively smaller and entrepreneurial businesses. We discuss some implications for framing of policy.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 4312

Classification and Topics

• Classification: Wirtschaft ; Production, Pricing, and Market Structure; Size Distribution of Firms ; Information, Knowledge, and Uncertainty: General ; Innovation; Research and Development; Technological Change; Intellectual Property Rights: General ; General Financial Markets: General (includes Measurement and Data) ; Antitrust Issues and Policies: General
• Subject: uncertainty ; small businesses ; entrepreneurship ; employment ; number of businesses ; financing-constraints ; real-options

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Ghosal, Vivek ; Ye, Yang
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/77662
• Last update: 10.03.2025, 11:43 AM CET