Political Risk and Irreversible Investment
AbstractThe objective of this article is two-fold. First, we develop a theoretical model to investigate the impact of political risk on irreversible investment. Second, we apply our model to an analysis of the effects of risk of separation of the province of Quebec from the Canadian federation. We model the probability of a regime switch using the properties of the electoral process and examine the response of investment to changes in the risk of separation. We consider the impact of investors' perception of the risk of separation and financial market volatility separately. We show that political risk has a depressing impact on investment even if the 'bad' regime has never been observed in the sample. (JEL Codes: E22, D92, O16, O11) Copyright , Oxford University Press.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by CESifo in its journal CESifo Economic Studies.
Volume (Year): 53 (2007)
Issue (Month): 3 (September)
Contact details of provider:
Postal: Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK
Phone: +49 (89) 9224-0
Fax: 01865 267 985
Web page: http://cesifo.oxfordjournals.org/
More information through EDIRC
Other versions of this item:
- Sumru G. Altuğ & Fanny S. Demers & Michel Demers, 2007. "Political Risk and Irreversible Investment," KoÃ§ University-TUSIAD Economic Research Forum Working Papers 0707, Koc University-TUSIAD Economic Research Forum.
- E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Financing, Investment, and Capacity
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Altug, Sumru & Demers, Fanny S. & Demers, Michel, 2009. "The investment tax credit and irreversible investment," Journal of Macroeconomics, Elsevier, vol. 31(4), pages 509-522, December.
- Dearmon, Jacob & Grier, Robin, 2011. "Trust and the accumulation of physical and human capital," European Journal of Political Economy, Elsevier, vol. 27(3), pages 507-519, September.
- Marvasti, Akbar, 2013. "The role of price expectations and legal uncertainties in ocean mineral, exploration activities," Resources Policy, Elsevier, vol. 38(1), pages 68-74.
- Wahl, Jack E. & Broll, Udo, 2009. "Mitigation of foreign Direct investment risk and hedging," Dresden Discussion Paper Series in Economics 13/09, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
- Amihai Glazer & Stef Proost, 2008. "Signaling Commitment by Excessive Spending," Working Papers 070811, University of California-Irvine, Department of Economics.
- Altug, Sumru G. & Filiztekin, Alpay & Pamuk, Sevket, 2007. "The Sources of Long-term Economic Growth for Turkey, 1880-2005," CEPR Discussion Papers 6463, C.E.P.R. Discussion Papers.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum).
If references are entirely missing, you can add them using this form.