This paper examines the effect of economic policy uncertainty and its components on firm-level investment. It is found that economic policy uncertainty in interaction with firm-level uncertainty depresses firms’ investment decisions. When firms are in doubt about costs of doing business due to possible changes in regulation, cost of health care and taxes, they become more guarded with investmen...

This paper shows that with (partial) irreversibility higher uncertainty reduces the responsiveness of investment to demand shocks. Uncertainty increases real option values making firms more cautious when investing or disinvesting. This is confirmed both numerically for a model with a rich mix of adjustment costs, time-varying uncertainty, and aggregation over investment decisions and time and a...

This paper provides a general characterization of subgame-perfect equilibria for a strategic timing problem, where two firms have the (real) option to invest irreversibly in some market. Profit streams are uncertain and depend on the market structure. The analysis of the problem emphasizes its dynamic nature and exploits only its economic structure. In particular, the determination of equilibri...

This paper develops a simple model in which uncertainty about a future tax change leads to a temporary reduction in investment. When the uncertainty is resolved, investment recovers, generating a temporary boom.

This paper studies optimal investment and the dynamic cost of income uncertainty, applying a stochastic programming approach. The motivation is given by a case study in Finnish agriculture. Investment decision is modelled as a Markov decision process, extended to account for risk. A numerical model for computing the dynamic uncertainty cost is presented, applying the classical expected value of...

New technologies are critical to enhancing agricultural productivity and reducing poverty in many developing countries. While public-sector investment in research has historically driven technological change in agriculture, recent trends suggest that the public sector’s role may not be as significant in the future. There is much optimism about the private sector’s capacity to deliver new techno...