The Effects of Uncertainty on Investment under Risk Neutrality with Endogenous Information

Abstract

Using a Bayesian framework, this paper considers a risk-neutral firm which has to pick an investment project out of many that are available. It is shown that, if the firm is allowed to collect information, it will usually devote some time to information gathering before choosing. The main result is that, when uncertainty increases, the firm finds it profitable to delay investment decisions even further in order to collect more information. Thus increased uncertainty decreases the current level of investment even under risk neutrality. Another implication is that increased uncertainties cause an increase in the demand for liquid assets.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 174 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.