Irreversible investment and information acquisition under uncertainty

Caroline Orset

No 2010/01, Working Papers from INRA, Economie Publique

Abstract: We analyse the decision of an agent to invest in new industrial activities the con- sequences of which on people's health and the environment are initially unknown. The agent does not have the possibility of delaying her/his investment but s/he gets the opportunity to acquire information in order to reduce her/his uncertainty. We find that the agent always invests unless the cost exceeds the direct benefit, and does acquire information with a certain degree of precision. Moreover, we show that acquiring information can encourage the agent to make a larger investment. Likewise, we identify all factors that might modify the agent's decisions. We then discuss some political instruments that could make it easier for investors to both in- novate and acquire information. Finally, the impact of insurance on the investment and information acquisition decisions is also examined.

Keywords: Grants; Information acquisition; Innovation; Insurance; Irreversible investment; Risk; Uncertainty (search for similar items in EconPapers)
JEL-codes: D21 D81 D83 G22 H81 (search for similar items in EconPapers)
Date: 2010-01-01
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