The Effects of Uncertainty and Sunk Costs on Firms’ Decision-Making: Evidence from Net Entry, Industry Structure and Investment Dynamics

Vivek Ghosal ()

Chapter Chapter 9 in The Economics of Imperfect Markets, 2010, pp 167-182 from Springer

Abstract: Abstract This paper presents selected evidence on the impact of uncertainty and sunk costs on firms’ decisions related to entry and exit, and investment expenditures. Evidence from a large sample of US manufacturing industries shows that greater uncertainty about profits significantly lowers net entry as well as investment. The negative effects are most pronounced in industries that are dominated by small firms and have high sunk costs. We note some implications for policy related to antitrust, employment and economic stabilization.

Keywords: Small Business; Small Firm; Total Factor Productivity; Great Uncertainty; Total Factor Productivity Growth (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:spr:conchp:978-3-7908-2131-4_9

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DOI: 10.1007/978-3-7908-2131-4_9

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