Investment, Uncertainty, and Irreversibility in Ghana:

Panel data on Ghanaian manufacturing firms are used to test predictions from models of irreversible investment under uncertainty. Information on the entrepreneur's subjective probability distribution over future demand for the firm's products is used to construct the expected variance of d...

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Bibliographic Details
Main Author: Pattillo, Catherine A. (Author)
Format: Electronic eBook
Language:English
Published: Washington, D.C International Monetary Fund 1997
Series:IMF Working Papers Working Paper No. 97/169
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Summary:Panel data on Ghanaian manufacturing firms are used to test predictions from models of irreversible investment under uncertainty. Information on the entrepreneur's subjective probability distribution over future demand for the firm's products is used to construct the expected variance of demand, which is used as a measure of uncertainty. Empirical results support the prediction that firms wait to invest until the marginal revenue product of capital reaches a firm-specific hurdle level. Moreover, higher uncertainty raises the hurdle level that triggers investment, and uncertainty has a negative effect on investment levels that is greater for firms with more irreversible investment
Physical Description:1 Online-Ressource (37 p)
ISBN:1451858302
9781451858303

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