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Trigger Values of (Non-) Residential Structures and Equipment Investment

Author

Listed:
  • Peeters, Marga

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

Abstract

Trigger values are derived for investment projects that are affected by (i) uncertainty (according to Dixit and Pindyck, 1994) and (ii) construction periods (see Majd and Pindyck, 1987). The values are compared theoretically with trigger values for projects with rather certain returns, as well as with projects that can be obtained without long delays. Simulation results show the importance of the mixed effect of uncertainty and time-to-build on the decision to invest. Empirical results obtained with national (non-) residential structures and equipment data corroborate the importance of both aspects. The main conclusion is that time-to-build projects faced with uncertainty, like non-residential structures, seem to be affected disproportionally more than projects that do not have either of these aspects.

Suggested Citation

  • Peeters, Marga, 1995. "Trigger Values of (Non-) Residential Structures and Equipment Investment," LIDAM Discussion Papers IRES 1995019, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvir:1995019
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    Cited by:

    1. Jérôme Bourdieu & Benoît Coeuré & Béatrice Sédillot, 1997. "Investissement, incertitude et irréversibilité. Quelques développements récents de la théorie de l'investissement," Revue Économique, Programme National Persée, vol. 48(1), pages 23-53.

    More about this item

    Keywords

    uncertainty; irreversible investment; option; time-to-build;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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