Irreversible investment and Knightian uncertainty

• 成果类型: Article
• 署名作者: Nishimura, Kiyohiko G.; Ozaki, Hiroyuki
• 署名单位: Bank of Japan; Keio University
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2006.10.011
• 发表日期: 2007
• 页码: 668-694
• 关键词: Knightian uncertainty; RISK; irreversible investment; optimal stopping

摘要

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 uncertainity 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 AM value of investment opportunity while an increase in risk increases it. (C) 2007 Elsevier Inc. All rights reserved.