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Investment, uncertainty and irreversibility

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  • Le Khuong Ninh
  • Niels Hermes
  • Ger Lanjouw

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 uncertainty reduces investment of rice millers in the presence of irreversibility, as is predicted by the real options approach to investment. We do not find evidence that the negative association between uncertainty and investment is influenced by the degree of irreversibility.

Suggested Citation

  • Le Khuong Ninh & Niels Hermes & Ger Lanjouw, 2004. "Investment, uncertainty and irreversibility," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 12(2), pages 307-332, June.
    • Handle: RePEc:bla:etrans:v:12:y:2004:i:2:p:307-332
    DOI: 10.1111/j.0967-0750.2004.00180.x
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    Cited by:

    1. Tran Nhuan Kien & Yoon Heo, 2008. "Doi Moi Policy and Socio-Economic Development in Vietnam, 1986–2005," International Area Studies Review, Center for International Area Studies, Hankuk University of Foreign Studies, vol. 11(1), pages 205-232, March.
    2. K. Farla, 2014. "Determinants of firms' investment behaviour: a multilevel approach," Applied Economics, Taylor & Francis Journals, vol. 46(34), pages 4231-4241, December.
    3. Swinnen, Johan F.M. & Vercammen, James, 2006. "Uncertainty and Specific Investment with Weak Contract Enforcement," 2006 Annual meeting, July 23-26, Long Beach, CA 21044, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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