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On the definition of the investment-uncertainty relationship

Óscar Gutiérrez

Journal of Economics and Business, 2020, vol. 112, issue C

Abstract: This short paper provides a rigorous definition for the assertion “an increase of uncertainty harms investment” within the real-options framework. In most cases, the effect of uncertainty on investment depends on the time-horizon considered. For typical parameter configurations, more uncertainty favors investment in the short-run.

Keywords: Real-options; Uncertainty/Investment relationship; Distribution function; First-passage time of a Brownian motion (search for similar items in EconPapers)
JEL-codes: C61 E22 G30 L23 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.jeconbus.2020.105934

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