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Investment and Demand Uncertainty

Author

Listed:
  • Guiso, L.
  • Parigi, G.

Abstract

Theoretical models of investment under uncertainty predict that the sign and the strength of the investment -uncertaintyrelationship is in principle ambiguous and can vary greatly across groups of firms depending on the degree of irreversibility of investment and the market power of the firm. This paper investigates the effects of uncertainty on the investment decisions of a sample of Italian manufacturing firms, using information on the subjective probability distribution of future demand for firms' products according to entrepreneurs.

Suggested Citation

  • Guiso, L. & Parigi, G., 1996. "Investment and Demand Uncertainty," Papers 289, Banca Italia - Servizio di Studi.
  • Handle: RePEc:fth:banita:289
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    Keywords

    INVESTMENTS; RISK;

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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