Political Risk and Irreversible Investment

Sumru Altug, Fanny Demers and Michel Demers ()

CESifo Economic Studies, 2007, vol. 53, issue 3, 430-465

Abstract: The objective of this article is two-fold. First, we develop a theoretical model to investigate the impact of political risk on irreversible investment. Second, we apply our model to an analysis of the effects of risk of separation of the province of Quebec from the Canadian federation. We model the probability of a regime switch using the properties of the electoral process and examine the response of investment to changes in the risk of separation. We consider the impact of investors' perception of the risk of separation and financial market volatility separately. We show that political risk has a depressing impact on investment even if the 'bad' regime has never been observed in the sample. (JEL Codes: E22, D92, O16, O11) Copyright , Oxford University Press.

Date: 2007
References: Add references at CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://hdl.handle.net/10.1093/cesifo/ifm014 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Political Risk and Irreversible Investment (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:cesifo:v:53:y:2007:i:3:p:430-465

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

CESifo Economic Studies is currently edited by Panu Poutvaara

More articles in CESifo Economic Studies from CESifo Group Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().