News About News: Information Arrival and Irreversible Investment
AbstractWe analyze how uncertainty about when information about future returns to a project may be revealed affects investment. While 'good news' about future returns boosts investment, 'good news about news' (that is news that information may arrive sooner) is shown to depress investment. We show that early revelation increases the value of an irreversible investment project to a risk-neutral investor. We relate our results on preference for early revelation to results in non-expected utility theory. Our framework allows us to study irreversible investment projects whose value has a time-variable volatility. We also consider how heterogeneity of revelation information across firms may induce a better-informed firm to share its information with competitors.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Technical Working Papers with number 0244.
Date of creation: Aug 1999
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Find related papers by JEL classification:
- D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Financing, Investment, and Capacity
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-1999-09-17 (All new papers)
- NEP-FIN-1999-09-17 (Finance)
- NEP-IND-1999-09-17 (Industrial Organization)
- NEP-MIC-1999-09-17 (Microeconomics)
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