The dynamics of investment under uncertainty

Arbeitspapier

We derive robust predictions on the effects of uncertainty on short run investment dynamics in a broad class of models with (partial) irreversibility. When their environment becomes more uncertain firms become more cautious and less responsive to demand shocks. This result contrasts with the long run analysis, in which the effect of real options on the level of the capital stock is ambiguous. An investment model is estimated to test these theoretical predictions using a panel of UK firms and a stock returns-based measure of uncertainty. As predicted we find that uncertainty reduces firms' responsiveness to demand shocks.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IFS Working Papers ; No. 01/05

Classification and Topics

• Classification: Wirtschaft ; Investment; Capital; Intangible Capital; Capacity ; Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models
• Subject: Investment ; uncertainty ; real options ; panel data ; Betriebswirtschaftliche Investitionstheorie ; Theorie ; Schätzung ; Großbritannien ; Entscheidung bei Unsicherheit

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bloom, Nicholas ; Bond, Stephen ; Van Reenen, John
• Event: Veröffentlichung
• (who): Institute for Fiscal Studies (IFS)
• (where): London
• (when): 2001

Further information

• DOI: doi:10.1920/wp.ifs.2001.0105
• Handle: http://hdl.handle.net/10419/71521
• Last update: 10.03.2025, 11:45 AM CET