Investment timing and quantity under uncertainty and asymmetric information

Wenhe Song and Shou Chen

Applied Economics Letters, 2024, vol. 31, issue 20, 2182-2187

Abstract: We extend an investment model with demand uncertainty and asymmetric information on investment costs. The manager of firms has more investment costs information than the owner. Meanwhile, demand uncertainty that firms always face after investment. We develop a dynamic model that captures the joint effect of uncertainty and asymmetric information on investment timing and quantity. The results show that the risk effect dominates the uncertainty effect on the investment threshold and quantity. The uncertainty and degree of asymmetric information have opposite effects on investment. Moreover, the risk effect dominates the uncertainty effect, while the risk and the degree of asymmetric information are synergistic effects.

Date: 2024
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DOI: 10.1080/13504851.2023.2212953

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