Foreign Direct Investment, Real Options and Expropriation under Incomplete Information: Theory and Example

Expropriation of Foreign Direct Investment

Stylized evidence indicates that democracies and autocracies both expropriate foreign direct investment but that democracies do so less frequently. What explains the similarities and differences in expropriation between regime types? An analysis of actual expropriation acts in 63 developing countries from 1960 to 1990 shows that democracies are most likely to expropriate foreign investment when...

Foreign direct investment and the risk of expropriation

Extending Real Options Theory to Account for Property Investment under Conditions of Uncertainty and Incomplete Markets

The literature on real options theory is both diverse and rapidly expanding. Now standard techniques for the pricing of derivatives given a stochastic process for the price of underlying assets, are increasingly applied to the case of real investment in productive assets, including property development (Trigeorgis, 1996). Typically, this latter class of investments is represented as a set of op...

Tax competition for foreign direct investment under information uncertainty

a r t i c l e i n f o JEL classification: F23 H25 Keywords: Corporate taxation International profit shifting Real options FDI The relation between taxation states and foreign direct investment (FDI) has been studied from several perspectives and with states at different levels of development. Most previous studies, however, have only considered the impact of tax level on FDI volume. This paper ...

Investment Timing Under Incomplete Information

We study the decision of when to invest in an indivisible project whose value is perfectly observable but driven by a parameter that is unknown to the decision maker ex ante. This problem is equivalent to an optimal stopping problem for a bivariate Markov process. Using filtering and martingale techniques, we show that the optimal investment region is characterised by a continuous and non-decre...