generalized models of japanese demand for fish given a relative lack of knowledge about japanese consumer preferences for fish japanese fish demand is modeled using both marshallian ordinary and inverse demand systems each of which nests a number of competing specifications results indicate that the inverse demand systems dominate the ordinary demand systems in forecasting performance and in nonnested tests the inverse system suggests that japanese fish prices are less responsive to changes in consumption than found in previous studies

co development ventures optimal time of entry and profit sharing we find the optimal time for entering a joint venture by two firms and the optimal linear contract for sharing the profits we consider risk sharing timing incentive and asymmetric decisions contract designs if the firms are risk neutral and the cash payments are allowed all three designs are equivalent with risk aversion the optimal contract parameters may vary significantly across the three designs and across varying levels of risk aversion we also analyze a dataset of joint biomedical ventures in which in agreement with our theoretical predictions both royalty and cash payments are mostly increasing in the smaller firm s experience and the time of entry happens sooner for more experienced small firms

the role of agriculture and its prerequisites in economic development a vision for foreign development assistance abstract the aim of this paper is to establish a vision for foreign development assistance based upon the evolution of thought and empirical evidence found in the development literature the paper spotlights the agricultural led approach the empirical record shows that agricultural growth had a more pronounced impact on increases in developing country income than did growth in the nonagricultural sector the reason for the differential impact is that developing countries focusing on agricultural development experienced more broad based income growth and increases in the demand for domestically produced goods whereas the developing countries promoting rapid industrialization experienced narrow based income growth with a demand pattern oriented toward nonfood and capital intensive products a precondition for agriculture to play its proper role is the existence of a conducive environment in which private enterprise can flourish developing country governments need to assume responsibility for the creation and maintenance of essential institutions government investments are required in education infrastructure and other areas where the commercial market is not capable of delivering critical services finally governments must responsibly manage the macroeconomy pursuing sustainable pricing policies and fiscal and monetary policies that are consistent with real equilibrium exchange rates

is the investment uncertainty relationship nonlinear an empirical analysis for the netherlands we examine the investment uncertainty relationship for a panel of dutch non financial firms the system generalized method of moments gmm estimates suggest that the effect of uncertainty on investment is nonlinear for low levels of uncertainty an increase in uncertainty has a positive effect on investment while for high levels of uncertainty an increase in uncertainty lowers investment this result is in line with a number of theoretical studies but has never been documented empirically

can the trade off theory explain debt structure we examine the optimal mixture and priority structure of bank and market debt using a tradeoff model where banks have the unique ability to renegotiate outside formal bankruptcy flexible bank debt offers a superior tradeoff between tax shields and bankruptcy costs ease of renegotiation limits bank debt capacity however optimal debt structure hinges upon which party has bargaining power in private workouts weak firms have high bank debt capacity and utilize bank debt exclusively strong firms lever up to their lower bank debt capacity augment with market debt and place the bank senior therefore the tradeoff theory offers an explanation for i why young small firms use bank debt exclusively ii why large mature firms employ mixed debt financing and iii why bank debt is senior the tradeoff theory also generates predictions consistent with international evidence in countries where the bankruptcy regime entails soft tough enforcement of contractual priority bank debt capacity is low high implying greater less reliance on market debt

does agricultural growth in poor countries harm agricultural exporting rich countries abstract the commonly held view that agricultural exporting developed countries would lose from agricultural growth in less developed countries lcds is shown to be based on an incomplete argument it considers only the effects on ldc agricultural supply or at best only that and the first round effects of increased farmer incomes on the demand for tradables what also needs to be considered is the effect on the demand for nontradables and hence the second round effects of increased spending by producers of nontradables when all these effects are considered the positive correlations obtained between agricultural output growth in ldcs and agricultural imports from developed countries is not surprising it is then shown that selling or giving away agricultural research and management skills to developing countries can be beneficial to developed countries including agricultural exporters by setting out to do good they may end up also doing well

uncertain dynamics correlation effects and robust investment decisions abstract we analyze a firm s investment problem when the dynamics of project value and investment cost are uncertain we provide an explicit solution using a robust method for an ambiguity averse firm taking this into account ambiguity aversion regarding a common risk factor impacts differently than ambiguity aversion regarding investment cost residual risk correlation between project value and investment cost matters ambiguity aversion regarding common risk can decrease the investment probability only if correlation is positive ambiguity aversion regarding residual risk always increases the investment probability when only project value is risky volatility can monotonically decrease the investment threshold this does not hold with the multiple prior method

uncertainty and growth of the firm using data from a survey of 1 097 small and medium sized non listed dutch firms we investigate the relation between growth of the firm and uncertainty we focus on the impact of sales uncertainty on various types of investment we find that sales uncertainty measured by the conditional variance has a mixed impact on various investment decisions we include an analysis of the relevance of financial structure and firm size on the growth uncertainty relation

on interpreting inverse demand systems a primal comparison of scale flexibilities and income elasticities scale flexibilities in inverse demand systems describe how marginal valuations change with expansions in the consumption bundle such effects clearly are related to income elasticities in direct demand systems however the connection is not so close as it first appears we argue that the link between scale flexibilities and income elasticities is tight only if preferences are homothetic a situation where neither measure is interesting or if all elasticities of substitution are unitary we make clear the relationship between the two measures in a coordinate system focusing on how marginal rates of substitution change with consumption scale and proportion

the interaction of debt financing cash grants and the optimal investment policy under uncertainty abstract significant progress has been made toward understanding a levered firm s optimal investment policy under uncertainty to date however not much work has concentrated on the time scale trade off and collectively held real options we employ a game theoretic real option model between a firm and a government to analyze the effect of uncertainty and investment stimulus in the form of cash grants on optimal investment timing financing and investment scaling we find that the jointly held real option between the firm and the government leads to underinvestment regardless of whether the firm has the possibility to issue debt subsidies however reduce the level of underinvestment notably the results indicate that even though levered firms receive less support they invest more than unlevered firms this challenges recent findings that a firm s optimal investment level is not affected by the way it finances a project similarly we find that for realistic parameter constellations the levered firm s optimal investment threshold can be higher than that of its unlevered counterpart this indicates that the availability of tax shield benefits does not necessarily serve as an incentive to invest earlier finally we show that the effect of cash flow uncertainty on the equilibrium level of grants is ambiguous and triggers the switch from a subsidy to non subsidy regime

business cycles and research investment this paper examines the impact of uncertainty and the business cycle on us high tech manufacturing firms research investment although the reliance on internal financing suggests firms will consider uncertainty and the business cycle when determining their research budget little is known about how the business cycle and uncertainty influence research investment using firm level data on sales cash flow and industry level indicators of the business cycle this paper finds that the firm s response to the business depends on the firm s industry and the industry s current location in the business cycle the data also shows that the business cycle also depresses the firm s reaction to changes in sales and cash flow uncertainty clearly reduces research efforts although non linearly

the effect of oil price volatility on strategic investment in this paper we investigate how oil price volatility affects the strategic investment decisions of a large panel of us firms this paper uses key insights from the real options literature to develop a model of a company s strategic investment and shows how changes in oil price volatility can impact strategic investment decisions the model is estimated using recently developed generalized method of moment estimation techniques for panel data sets empirical results are presented to show that there is a u shaped relationship between oil price volatility and firm investment this is consistent with the predictions from the strategic growth options literature the results should be useful to decision makers investors managers policy makers and others who need to make strategic investment decisions in an uncertain world

bootstrapping your fish or fishing for bootstraps precision of welfare loss estimates from a globally concave inverse demand model of commercial fish landings in the u s great lakes we extend holt and bishop s 2002 normalized quadratic inverse demand function by obtaining measures of precision of elasticities and consumer welfare loss estimates due to reductions in commercial landings in the u s great lakes even with curvature constraints imposed confidence intervals are obtained by using the bootstrap subsample bootstrap and subsample jackknife

real options delay vs pre emption do industrial characteristics matter this paper presents an empirical study of the channels of influence from uncertainty to fixed investment suggested by real options theory using panel data from the confederation of british industry cbi industrial trends survey we report ols estimates of the impact of uncertainty on investment where the regressors are augmented by cross sectional averages of the dependent variable and of the individual specific regressors as recently suggested by pesaran pesaran m h 2006 estimation and inference in large heterogeneous panels with a multifactor error structure econometrica 74 967 1012 the cross industry pattern of results is checked for consistency with the pattern predicted by real options theory using a specially constructed data set of industrial characteristics we find that irreversibility is able to predict the pattern detected but only when combined with a measure of the information advantage of delay there is also evidence for expansion options effects industries with high r d and advertising intensities tend to have positive uncertainty effects

irreversible investment and knightian uncertainty when firms make a decision about irreversible investment they may not have complete confidence about their perceived probability measure describing future uncertainty they may think other probability measures perturbed from the original one are also possible such uncertainty characterized by not a single probability measure but a set of probability measures is called knightian uncertainty the effect of knightian uncertainty on the value of irreversible investment opportunity is shown to be drastically different from that of traditional uncertainty in the form of risk specifically an increase in knightian uncertainty decreases the value of investment opportunity while an increase in risk increases it

a real option model for renewable energy policy evaluation with application to solar pv power generation in china abstract this study proposes a policy evaluation model from the perspective of government and investors the proposed model which integrates american option method and two factor learning curve method can be used to evaluate the unit decision value and save path rate for renewable energy development and examine the existence of balance point of interest several uncertain factors including non renewable energy cost carbon price renewable energy cost and price subsidy are all considered in this model the model has been applied to evaluate the solar photovoltaic pv power generation in china our empirical results show that real option analysis roa is more effective than net present value analysis npv when handling uncertainty under current level of subsidy the government would suffer loss and the investors could benefit so that it is difficult to achieve the balance of interest during the planning period with the reduction of subsidy rate they can achieve the balance of interest

irreversible abatement investment under cost uncertainties tradable emission permits and emissions charges abstract a major concern with tradable emission permits is that stochastic permit prices may reduce a firm s incentive to invest in abatement capital or technologies relative to other policies such as a fixed emissions charge however under efficient permit trading the permit price uncertainty is caused by abatement cost uncertainties which affect investment under both permit and charge policies we develop a rational expectations general equilibrium model of permit trading and irreversible abatement investment to show how cost uncertainties affect investment under permits we compare the resulting investment incentive with that under charges after controlling for the assumption that random shocks affect the abatement cost linearly we find that firms investment incentive decreases in cost uncertainties but more so under emissions charges than under permits therefore tradable permits in fact may help maintain firms investment incentive under uncertainty

the effect of uncertainty on investment timing in a real options model abstract this paper examines the effect of uncertainty on investment timing in a canonical real options model we show that the critical value of a project that triggers the exercise of the investment option exhibits a u shaped pattern against the volatility of the project this is due to the two countervailing risk and return factors in effect we further show that such a u shaped pattern is inherited by the expected time to exercise the investment option thus for relatively safe projects greater uncertainty shortens the expected exercise time and thus enhances investment this is in sharp contrast to the negative investment uncertainty relationship commonly found in the extant literature finally we show that the positive investment uncertainty relationship is more likely for high growth projects than for low growth projects

the effect of mean reversion on investment under uncertainty abstract mean reverting processes are appropriate for most real option investment models yet geometric brownian motion gbm processes are generally used for tractability hassett and metcalf j econom dyn control 19 1995 1471 1488 argue that using a gbm process is justified because mean reversion has two opposing effects it brings the investment trigger closer and also reduces the conditional volatility thereby lowering the likelihood of reaching the trigger and the overall effect on investment should be negligible for most reasonable parameter values this paper extends the hassett and metcalf model by incorporating a third factor the effect of mean reversion on systematic risk the main result is that mean reversion in general does have a significant impact on investment moreover this effect could be either positive or negative depending on various factors such as project duration cost of investing interest rate etc thus it is generally inappropriate to use the gbm process to approximate a mean reverting process

on the investment uncertainty relationship in a real options model abstract it appears to be widely accepted in the real options literature that an increase in uncertainty should have an inhibiting effect on investment our article demonstrates that the notion of a negative uncertainty investment relationship is not always correct we show that in certain situations an increase in uncertainty can actually increase the probability of investing and thereby have a positive impact on investment

a model for irreversible investment with construction and revenue uncertainty this paper presents a model of investment in projects that are characterized by uncertainty over both the construction costs and revenues both processes are modeled as spectrally negative levy jump diffusions the optimal stopping problem that determines the value of the project is solved under fairly general assumptions it is found that the current value of the benefit to cost ratio bcr decreases in the frequency of negative shocks to the construction process this implies that the cost overruns that can be expected if one ignores such shocks are increasing in their frequency based on calibrated data the model is applied to the proposed construction of high speed rail in the uk and it is found that its economic case cannot currently be made and is unlikely to be met at any time in the next decade in addition it is found that ignoring construction uncertainty leads to a substantial probability of an erroneous decision being taken

the overall effect of volatility on investment abstract we introduce a new channel called random delay effect through which volatility influences real investment we show that random delay effect is not negligible in determining the sign of the volatility investment relationship

investment under alternative return assumptions comparing random walks and mean reversion abstract many recent theoretical papers have come under attack for modeling prices as geometric brownian motion this process can diverge over time implying that firms facing this price process can earn infinite profits we explore the significance of this attack and contrast investment under geometric brownian motion with investment assuming mean reversion while analytically more complex mean reversion in many cases is a more plausible assumption allowing for supply responses to increasing prices we show that cumulative investment is generally unaffected by the use of a mean reversion process rather than geometric brownian motion and provide an explanation for this result

heterogeneity in the dynamic effects of uncertainty on investment how does aggregate profit uncertainty influence investment activity at the firm level we propose a parsimonious adaptation of a factor autoregressive conditional heteroscedasticity model to exploit information in a subindustry sales panel for an efficient and tractable estimation of aggregate volatility

model misspecification and underdiversification in this paper we study intertemporal portfolio choice when an investor accounts explicitly for model misspecification we develop a framework that allows for ambiguity about not just the joint distribution of returns for all stocks in the portfolio but also for different levels of ambiguity for the marginal distribution of returns for any subset of these stocks we find that when the overall ambiguity about the joint distribution of returns is high then small differences in ambiguity for the marginal return distribution will result in a portfolio that is significantly underdiversified relative to the standard mean variance portfolio

third world development food employment and growth interactions over the next few decades an unprecedented number of people and proportion of the world s population will reside in countries passing through a development phase in which domestic demand for food grows at a high rate relative to domestic production of food that phase is described by high per capita income growth rates in a context of low base incomes and rapid population growth in this phase the innate difficulty for food production growth rates to keep pace with demand growth is enhanced by the still immature system for shifting agricultural supply schedules which is characteristic of this relatively early stage of economic growth a substantial proportion of the population now experiencing accelerating economic growth falls in countries which derive a major portion of income from exports of oil but increasingly the source is greater resource productivity through economic development and technological change the latter is the result of the past few decades of concentrated effort to lay the institutional and physical infrastructure of a modern economic system rising real food prices caused by greatly accelerated growth in demand for food will tend to restrain growth in developing countries and increase relative and absolute poverty the extent of real price increase for food will be substantially determined by the rate of technological change and supply elasticity in developed countries this is because in the eveloping countries says law tends to operate in the market for food and so accelerated growth in food production tends to create a roughly commensurate or even greater increase in demand for food in this context it becomes economic for developing countries to place a greater emphasis on agricultural production in their development strategies than was justified in earlier decades success in such an effort will diffuse the benefits of growth more widely than alternative strategies and will even accelerate growth if as has often been the case previous emphasis on agriculture was suboptimal for the earlier conditions thus over the next decade the economic pressures on the food front may well have a salutary effect on the pace and pattern of development

risk uncertainty and option exercise many economic decisions can be described as an option exercise or optimal stopping problem under uncertainty motivated by experimental evidence such as the ellsberg paradox we follow knight 1921 and distinguish risk from uncertainty to capture this distinction we adopt the multiple priors utility model we show that the impact of ambiguity on the option exercise decision depends on the relative degrees of ambiguity about continuation payoffs and termination payoffs consequently ambiguity may accelerate or delay option exercise we apply our results to investment and exit problems and show that the myopic npv rule can be optimal for an agent having an extremely high degree of ambiguity aversion

the inverse almost ideal demand system abstract a new demand system related to the almost ideal demand system aids of deaton and muellbauer is developed and illustrated this inverse aids iaids retains all of the desirable theoretical properties of the aids model with the exception of consistent aggregation an empirical issue is whether a linear approximation will work as well for the iaids as it has for the aids model since quantities are not as highly correlated as prices an application to u s meat demand demonstrates that the linear approximation of the iaids is excellent which enhanced the ease and range of application

uncertainty and the trade off between scale and flexibility in investment abstract this paper analyzes the behavior of a firm that chooses both the scale and timing of its investment sensitivity analysis shows that greater demand volatility is associated with the firm investing in larger increments less frequently this is in contrast to the conventional wisdom which is that greater volatility leads to investment in smaller increments more frequently overall the reduced frequency dominates the greater scale so that the long run average rate of investment is a decreasing function of demand volatility the timing and scale of investment are most sensitive to volatility when there are substantial investment economies of scale

finite project life and uncertainty effects on investment abstract this paper revisits the important result of the real options approach to investment under uncertainty which states that increased uncertainty raises the value of waiting and thus decelerates investment typically in this literature projects are assumed to be perpetual however in today s economy firms face a fast changing technology environment implying that investment projects are usually considered to have a finite life the present paper studies investment projects with finite project life and we find that in contrast with the existing theory investments may be accelerated by increased uncertainty it is shown that this particularly happens at low levels of uncertainty and when project life is short

incomplete markets ambiguity and irreversible investment abstract the problem of irreversible investment with idiosyncratic risk is studied by interpreting market incompleteness as a source of ambiguity over the appropriate no arbitrage discount factor the maxmin utility over multiple priors framework is used to model and solve the irreversible investment problem multiple priors are modeled using the notion of ignorance this set up is used to analyze finitely lived options for infinitely lived options the notion of constant ignorance is introduced for these sets of density generators the corresponding optimal stopping problem is solved for general in finite horizon optimal stopping problems driven by geometric brownian motion it is argued that an increase in the set of priors delays investment whereas an increase in the degree of market completeness can have a non monotonic effect on investment

hedging the value of waiting abstract we analyze the optimal hedging policy of a firm that has flexibility in the timing of investment conventional wisdom suggests that hedging adds value by alleviating the under investment problem associated with capital market frictions however our model shows that hedging also adds value by allowing investment to be delayed in circumstances where the same frictions would cause it to commence prematurely thus hedging can have the paradoxical effect of reducing investment we also show that greater timing flexibility increases the optimal quantity of hedging but has a non monotonic effect on the additional value created by hedging these results may help explain the empirical findings that investment rates do not differ between hedgers and non hedgers and that hedging propensities do not depend on standard measures of growth opportunities

irreversible investment under interest rate variability some generalizations we study the impact of interest rate and revenue variability on the decision to carry out irreversible investment we provide a mathematical characterization of the two dimensional optimal stopping problem and show that interest rate variability has a decelerating or accelerating impact on investment depending on whether the current interest rate is below or above the long run steady state allowing for interest rate volatility decelerates investment by raising both the required exercise premium of the investment opportunity and the value of waiting finally increased revenue volatility is shown to strengthen the negative impact of interest rate volatility and vice versa

inverse demand systems and choice of functional form abstract barten empirical economics 18 1993 129 recently advocated estimation of a synthetic demand system that mechanically nests four other popular differential demand models this paper follows a similar strategy but in the context of four inverse share equation demand systems the inverse translog demand system itlds the inverse almost ideal demand system iaids the inverse lewbel demand system ilds and the inverse non separable linear expenditure system inles each of these specifications is artificially nested in a hybrid inverse demand system hids an empirical application to three categories of quarterly u s meat demand data over the period 1961 1996 indicates the hids is a preferred specification

on the sign of the investment uncertainty relationship understanding the effects of uncertainty over any decision variable has fascinated economists for a long time risk aversion and incomplete markets are likely to make the investment uncertainty relationship negative e g roger craine 1989 joseph zeira 1989 what happens in the absence of risk aversion and incomplete markets is however ambiguous richard hartman 1972 and andrew b abel 1983 1984 1985 found that in the presence of symmetric convex costs of adjustment mean preserving increases in price uncertainty raise investment of a competitive firm as long as the profit function is convex in prices on the other hand the recent literature on irreversible investment e g robert s pindyck 1988 giuseppe bertola 1988 has shown that increases in uncertainty lower investment all these results have been derived under either risk neutrality or complete markets intuition suggests that the explanation for such a difference lies with the asymmetric nature of adjustment costs in the irreversible investment case as compared with the symmetry of the adjustment cost mechanisms proposed by abel and hartman although this intuition is confirmed in this paper asymmetric adjustment costs are shown not to be sufficient to explain why the results differ in fact a more hidden but at least as important difference between these two literatures is that the former assumes perfect competition and constant returns to scale whereas the latter assumes either imperfect competition or decreasing returns to scale or both 2 the purpose of this paper is to highlight the role of the decreasing marginal return to capital assumption due to either imperfect competition or decreasing returns to scale or both in determining the effects of adjustment cost asymmetries on the sign of the response of investment to changes in uncertainty under risk neutrality for this the paper develops a simple model with a cost of adjustment mechanism general enough to consider both symmetric convexity and irreversibility as special cases one of the most important findings is the lack of robustness of the negative relationship between investment and uncertainty under asymmetric adjustment costs3 to changes in the degree of competition in fact when firms are nearly competitive the conclusion of hartman and of abel holds no matter how asymmetric adjustment costs are studying adjustment cost mechanisms has a central role in understanding the dynamics of investment and its business cycle implications but conclusive results about the sign of the instantaneous relationship between uncertainty and investment should not be department of economics columbia university new york ny 10027 i am grateful to giuseppe bertola prajit dutta glen hubbard anil kashyap richard lyons and the referees for their useful comments 1the financial literature on investment has considered risk aversion through a premium in the discount rate determined by the capm capital asset pricing model intertemporal capm or consumption capm however often this discount rate is left unchanged when studying the response of investment to uncertainty changes e g pindyck 1988 pp 974 5 thereby omitting the effect of changes in uncertainty on investment due to risk aversion and incomplete markets 2in the typical version of the irreversible investment problem there is no cost of upward adjustments thus imperfect competition and or decreasing returns to scale are required to bound the size of the firm 3in this paper asymmetric adjustment cost refers to the case in which it is more expensive to adjust downward than upward certainly the opposite case is a trivial extension of the case studied in this paper

optimal oil production and the world supply of oil abstract we study the optimal oil extraction strategy and the value of an oil field using a multiple real option approach the numerical method is flexible enough to solve a model with several state variables to discuss the effect of risk aversion and to take into account uncertainty in the size of reserves optimal extraction in the baseline model is found to be volatile if the oil producer is risk averse production is more stable but spare capacity is much higher than what is typically observed we show that decisions are very sensitive to expectations on the equilibrium oil price using a mean reverting model of the oil price where the equilibrium price is also a random variable oil production was cut during the 2008 2009 crisis and we find that the cut in production was larger for opec members for countries facing a lower discount rate and for countries whose governments finances are less dependent on oil revenues however the net present value of a country s oil reserves would be increased significantly by 100 in the most extreme case if production was cut completely when prices fall below the country s threshold price if several producers were to adopt such strategies world oil prices would be higher but more stable

devaluating projects and the investment uncertainty relationship abstract sarkar 2000 on the investment uncertainty relationship in a real options model journal of economic dynamics and control 24 219 225 analyzes the investment uncertainty relationship in a real options model demonstrating that the widely accepted conclusion that uncertainty harms investment can be reversed wong 2006 the effect of uncertainty on investment timing in a real options model journal of economic dynamics and control forthcoming confirms this point showing that more uncertainty can reduce the expected time to exercise the investment option this paper deals with such an issue and attempts to integrate both sarkar s and wong s analysis for risk neutral investors we show that uncertainty can favor investment only if projects devaluate over time this conclusion does not hold in a capm framework where we demonstrate that the relationship uncertainty investment can be positive a even when the investment threshold increases with uncertainty and b in the case of projects negatively correlated with the market portfolio

investment and uncertainty in the international oil and gas industry abstract the standard theory of irreversible investments and real options suggests a negative relation between investment and uncertainty richer models with compound option structures open for a positive relationship this paper presents a micro econometric study of corporate investment and uncertainty in a period of market turbulence and restructuring in the international oil and gas industry based on data for 115 companies over the period 1992 2005 we estimate four different specifications of the q model of investment with robust results for the uncertainty variables the estimated models suggest that macroeconomic uncertainty creates a bottleneck for oil and gas investment and production whereas industry specific uncertainty has a stimulating effect

the contribution of agriculture to economic growth some empirical evidence the paper analyzes the contribution of agriculture to economic growth by employing cross section data for the developing and developed countries during 1960 1970 and 1970 1979 it is found that in the context of mr chenery syrquin s model intercountry variation in agricultural growth explains a significant portion of intercountry variation in the industrial non agricultural growth further in the context of an aggregate production function agricultural growth is found to contribute significantly to productivity increases and thus to overall economic growth for the developing countries sample of the 1970 79 period the results show that a one percent increase in agricultural growth leads to approximately four tenths of a percentage point increase in productivity it is also found that export growth contributes positively to productivity growth while the inflation rate contributes negatively

price formation of fish an application of an inverse demand system inverse demand systems explain price variations as functions of quantity variations they have properties analogous to those of regular demand systems there are very few examples of their empirical application in part this is due to lack of data for which price is the decision variable and the quantity given the case of fish landed at belgian sea ports appears to suit an inverse demand system well a rotterdam variant of such a system in estimated allais interaction intensities have been derived and show a reasonable pattern

optimal r d investment for a risk averse entrepreneur abstract entrepreneurs investing in r d projects face technical uncertainty associated with the cost to completion of the project which is idiosyncratic and inherently unhedgeable we extend existing real options models of r d investment to incorporate the cost of bearing this unhedgeable risk and find it decreases risk averse entrepreneurs valuations of r d projects and increases the minimum npvs required for continued investment in r d threshold npvs relative to unpriced risk values and threshold npvs as in the unpriced risk case for less risk averse entrepreneurs with small r d projects threshold npvs remain negative and decrease with technical uncertainty however for sufficiently risk averse entrepreneurs with sufficiently large r d projects threshold npvs can become positive and increase with technical uncertainty

dynamic investment and capital structure under manager shareholder conflict abstract this paper investigates the interactions between the investment and financing decisions of a firm under manager shareholder conflicts arising from asymmetric information in particular we extend the manager shareholder conflict problem in a real options model by incorporating debt financing we show that manager shareholder conflicts over investment policy increase not only the investment and default triggers but also coupon payments which lead to a decrease in the equity value moreover given the presence of manager shareholder conflicts debt financing increases investment and decreases total social welfare as a result there is a trade off between the efficiency of investment and total social welfare with debt financing these results fit well with the findings of previous empirical work in this area

on the consumer value of complementarity a benefit function approach the article develops a conceptual model of the consumer value of complementarity and illustrates its usefulness in an application to fisheries complementarity arises when some goods have a positive effect on the marginal value of other goods we propose a measurement of the value of complementarity based on the benefit function our econometric analysis of fish consumption in italy examines these issues with special attention given to dynamics our results show that while short run fish demand is characterized by substitution relationships complementarity does develop in the intermediate run and in the long run copyright 2007 oxford university press

real exchange rate uncertainty private investment in ldcs this paper examines empirically the link between real exchange rate uncertainty and private investment in developing countries using a large cross country time series data set the paper builds a garch based measure of real exchange rate volatility and finds that it has a strong negative effect on investment after controlling for other standard investment determinants and taking into account their potential endogeneity the effect of uncertainty is not uniform however there is some evidence of threshold effects so that uncertainty only matters when it exceeds some critical level in addition the negative effect of real exchange rate uncertainty on investment is significantly larger in economies that are highly open and in those with less developed financial systems

a real options based model and its application to china s overseas oil investment decisions abstract this paper applies real options theory to overseas oil investment by adding an investment environment factor to oil resource valuation a real options model is developed to illustrate how an investor country or oil company can evaluate and compare the critical value of oil resource investment in different countries under oil price exchange rate and investment environment uncertainties the aim is to establish a broad model that can be used by every oil investor country to value overseas oil resources the model developed here can match three key elements 1 deal with overseas investment the effects of investment environment and exchange rates 2 deal with oil investment oil price production decline rate and development cost etc 3 the comparability of the results from different countries different countries oil investment situation can be compared by using the option value index ovi china s overseas oil investment is taken as an example to explain the model by calculating each oil investee country s critical value per unit of oil reserves and examining the effect of different factors on the critical value the results show that the model developed here can provide useful advice for china s overseas oil investment program the research would probably also be helpful to other investor countries looking to invest in overseas oil resources

risky business political instability and greenfield foreign direct investment in the arab world which foreign direct investments are most affected by political instability analysis of quarterly greenfield investment flows into countries in the middle east and north africa during the period from 2003 to 2012 shows that adverse political shocks are associated with significantly reduced investment inflows in the non resource tradable sectors by contrast investments in natural resource sectors and non tradable activities appear insensitive to such shocks political instability is thus associated with increased reliance on non tradables and aggravated resource dependence

investment in oligopoly under uncertainty the accordion effect this paper studies investments in new markets where more than two anticipated identical competitors are present in case of three firms an accordion effect is detected an exogenous demand shock results in a change of the wedge between investment thresholds of the first and second investor that is qualitatively different from the change of the wedge between the second and third investment threshold furthermore it turns out that in the three firm case the investment timing of the first investor lies in between the one and the two firm case these results are numerically extended to the n firm case

the benefit function approach to modeling price dependent demand systems an application of duality theory in this article we advocate more extensive use of the benefit function in specifying price dependent or inverse demand models we demonstrate how duality theory may be used to establish the interrelationships between the marshallian or hicksian inverse demands and luenberger s adjusted price functions allowing estimable inverse demands to be derived directly from a benefit function we estimate two systems of inverse demands for japanese quarterly fish consumption results indicate that the procedures and methods employed here appear promising and may prove beneficial for quantity and welfare analysis when modeling systems of inverse demand functions copyright 2009 oxford university press

irreversible investment uncertainty and ambiguity the case of bioenergy sector we analyze production and investment decisions of an agent in industrial activities that are characterized by two forms of uncertainty demand uncertainty in terms of number of buyers and competitive effect uncertainty in terms of other energy resource we apply our model on the bioenergy industries we compare the case of an ambiguity neutral agent with that of an ambiguity averse agent we show that the investment decision of an agent depends on the effects of both the capital investment and the level of production on the cost and the uncertainty the agent is confronted with moreover we find that ambiguity aversion tends to decrease the agent s optimal levels of production and investment our numerical analysis of the french case illustrates the different effects associated with demand uncertainty and competitive effect uncertainty

investment under uncertainty the case of replacement investment decisions we analyze the determinants of replacement investment decisions in a contingent claims model with maintenance and operation cost uncertainty we find that the optimal time between replacements is increasing in the volatility of cost the purchase price of a new asset and the corporate tax rate and is decreasing in the systematic risk of cost the salvage value of the asset and the investment tax credit the optimal time between replacements can either increase or decrease with an increase in the depreciation rate extensions of the model to examine the effects of technological and tax policy uncertainty on replacement investment decisions give intuitive but striking results uncertainty about the arrival of a technological innovation that would decrease maintenance and operation cost results in a significant decrease in replacement investment uncertainty in a tax law change that would encourage investment decreases current investment and uncertainty in a tax law change that would discourage investment increases current investment

investing in finite life carbon emissions reduction program under risk and idiosyncratic uncertainty this paper aims at emphasizing the ability of new frameworks of real option model to highlight key characteristics of industrial carbon emissions reduction program investment decision we develop both theoretical arguments and numerical simulations with structural parameters calibrated on real life data we find that both radical uncertainty and risk lead to speed up green investments compared to the predictions of real option models that are normally used in green investment literature the conventional wait and see attitude questioned in recent developments of the real option theory is not validated in conclusion our results should foster companies to implement green investments and help governments to define appropriate incentives to encourage green investments of particular note the paper highlights that finance theory is not necessarily an obstacle to green investment decisions

investment timing asymmetric information and audit structure a real options framework abstract this paper examines investment timing by the manager in a decentralized firm in the presence of asymmetric information in particular we incorporate an audit technology in the agency model developed by grenadier and wang 2005 investment timing agency and information journal of financial economics 75 493 533 the implied investment trigger in the agency problem with auditing is larger than in the full information problem and smaller than in the agency problem without auditing nevertheless the audit technology does not necessarily reduce inefficiency in the total social welfare

alpha robust mean variance reinsurance investment strategy abstract inspired by the maxmin expected utility we propose a new class of mean variance criterion called maxmin mean variance criterion and apply it to the reinsurance investment problem our model allows the insurer to have different levels of ambiguity aversion rather than only consider the extremely ambiguity averse attitude as in the literature the insurer can purchase proportional reinsurance and also invest the surplus in a financial market consisting of a risk free asset and a risky asset whose dynamics is correlated with the insurance surplus closed form equilibrium reinsurance investment strategy is derived by solving the extended hamilton jacobi bellman equation our results show that the equilibrium reinsurance strategy is always more conservative if the insurer is more ambiguity averse when the dependence between insurance and financial risks are weak the equilibrium investment strategy is also more conservative if the insurer is more ambiguity averse however in order to diversify the portfolio a more ambiguity averse insurer may adopt a more aggressive investment strategy if the insurance market is very ambiguous for an ambiguity neutral insurer the investment strategy is identical to the non robust investment strategy

understanding the relation between accruals and volatility a real options based investment approach abstract accruals are fundamental to financial reporting and are the underlying innovation of accounting despite this accounting research has provided little understanding of how economic forces affect a firm s level of accruals and limited guidance for forming expectations of accruals based on ex ante firm characteristics we consider accruals as a form of investment and examine whether theoretical predictions from a real options based investment framework provide insight into the relation between accruals and the ex ante expected volatility faced by the firm specifically the theory predicts that higher volatility dampens investment because firms prefer to wait and see instead of investing immediately consistent with this theory we document a robust negative relation between year ahead net working capital accruals and expected volatility we also predict and find that the negative association between year ahead net working capital accruals and expected volatility is less pronounced for distressed firms and more pronounced for firms with a longer operating cycle and that current asset accruals are more sensitive to volatility than current liability accruals finally we find that the residuals from an investment based expected accrual model outperform those from the widely used performance adjusted modified jones model in identifying companies that just meet or beat analysts earnings forecasts collectively our findings suggest that the investment perspective of accruals and in particular the real options based investment framework provide useful insights for forming expectations of accruals

an empirical investigation of the trade benefit function we introduce new definition and estimation procedures of trade benefit functions that allow researchers to generate estimable import share functions the method is based on the work of chau and fare while it is more general in permitting the estimation of hicksian import share systems which are explicit in an unobservable variable but may lack a closed form representation in terms of observable variables an empirical application demonstrates the feasibility of the proposed method