To Buy or Not to Buy? Uncertainty, Irreversibility and Heterogeneous Investment Dynamics in Italian Company Data

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Price:  $15.00

Author/Editor: Domenico Lombardi, Stephen Bond
Release Date: © June, 2004
ISBN : 978-1-45194-801-1
Stock #: WPIEA1042004
Stock Status: On back-order

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This study tests for the presence of real options effects induced by uncertainty and (partial) irreversibility on fixed capital investment using Italian company data. The approach recognizes that firm-level investment spending may, itself, be aggregated over multiple investment decisions in separate types of capital goods and emphasizes effects of uncertainty on short-run investment dynamics. Using a survey-based measure of uncertainty related to the assessment of managers responsible for the firms' investment plans, the study finds evidence of heterogeneous and nonlinear dynamics pointing to a slower adjustment of investment in response to demand shocks at higher levels of uncertainty. The results also point to an additional source of nonlinearity originating from a convex response of investment to demand shocks.


Economic development , Foreign investments , Investment , Investment incentives

More publications in this series: Working Papers

More publications by: Domenico Lombardi ; Stephen Bond