Irreversibility, uncertainty, and investment

Robert Pindyck

No 294, Policy Research Working Paper Series from The World Bank

Abstract: Despite its importance to economic growth and the evolution of market structure, the investment behavior of firms, industries, and countries remains poorly understood. This paper has several objectives. First, it reviews some basic models of irreversible investment to illustrate the option-like characteristics of investment opportunities, and to show how optimal investment rules can be obtained from methods of option pricing, or alternatively from dynamic programming. Second, it discusses the implication of irreversibility for the empirical analysis of investment behavior. Finally, it discusses briefly some of the implications that the irreversibility of investment may have for policy. For example, policies that stabilize prices or exchange rates may be effective ways of stimulating investment.

Keywords: Economic Theory&Research; International Terrorism&Counterterrorism; Environmental Economics&Policies; Access to Markets; Markets and Market Access (search for similar items in EconPapers)
Date: 1989-10-31
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://www-wds.worldbank.org/external/default/WDSC ... d/PDF/multi_page.pdf (application/pdf)

Related works:
Journal Article: Irreversibility, Uncertainty, and Investment (1991)
Working Paper: Irreversibility, uncertainty, and investment (1990)
Working Paper: Irreversibility, Uncertainty, and Investment (1990)
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:wbk:wbrwps:294

Access Statistics for this paper

More papers in Policy Research Working Paper Series from The World Bank 1818 H Street, N.W., Washington, DC 20433. Contact information at EDIRC.
Bibliographic data for series maintained by Roula I. Yazigi ().