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News About News: Information Arrival and Irreversible Investment

Author

Listed:
  • Drazen, Allan
  • Sakellaris, Plutarchos

Abstract

We analyze how uncertainty about when information about future returns to a project may be revealed affects investment. Whereas 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. 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.

Suggested Citation

  • Drazen, Allan & Sakellaris, Plutarchos, 1999. "News About News: Information Arrival and Irreversible Investment," Macroeconomic Dynamics, Cambridge University Press, vol. 3(3), pages 451-462, September.
    • Handle: RePEc:cup:macdyn:v:3:y:1999:i:03:p:451-462_01
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    Cited by:

    1. Yishay D. Maoz, 2005. "More on Bernanke's “Bad News Principle”," General Economics and Teaching 0510002, University Library of Munich, Germany.
    2. J. W. Fedderke & J. M. Luiz, 2008. "The Political Economy of Institutions, Stability and Investment: A Simultaneous Equation Approach in an Emerging Economy. The Case of South Africa," Journal of Development Studies, Taylor & Francis Journals, vol. 44(7), pages 1056-1079.
    3. Johannes Fedderke, 2004. "Investment in Fixed Capital Stock: Testing for the Impact of Sectoral and Systemic Uncertainty," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(2), pages 165-187, May.

    More about this item

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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