Business Decision-Making under Uncertainty: Evidence from Employment and Number of Businesses
Using the framework provided by the asymmetric-information and real-options theories, we examine the impact of uncertainty on firmsâ€™ decisions and market outcomes. We construct alternative measures of uncertainty based on survey of professional forecasters and our estimation of regression-based forecasting models for GDP growth, inflation, S&P500 stock price index, and fuel prices. Our results indicate that greater uncertainty has a negative impact on growth of employment and the number of businesses, and the effects are primarily felt by relatively smaller businesses. The impact on large businesses are generally non-existent or weaker. Our results suggest that to truly understand the effects of uncertainty on firmsâ€™ decisions, we need to focus on the relatively smaller and entrepreneurial businesses. We discuss some implications for framing of policy.
|Date of creation:||2013|
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