Irreversible investment and uncertainty: an empirical study of rice mills in the Mekong river delta, Vietnam

K.N. Le, Niels Hermes () and G. Lanjouw
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G. Lanjouw: Groningen University

No 03E40, Research Report from University of Groningen, Research Institute SOM (Systems, Organisations and Management)

Abstract: This paper investigates the irreversibility of investments and the impact this has on the nature of the relationship between investment and uncertainty. The empirical analysis uses firm-level data and is based on a survey of 210 rice-milling firms in the Mekong River Delta in Vietnam, which was carried out during the year 2000.We show that the relationship between investment and uncertainty is influenced by the extent to which investments are irreversible. In particular, the results indicate that when the degree of irreversibility increases, this increases the negative association between uncertainty and investment.

Date: 2003
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