Investment, uncertainty and irreversibility - An empirical study of rice mills in the Mekong River Delta, Vietnam

K.N. Le, C.L.M. Hermes, G.J. Lanjouw

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9 Citations (Scopus)

Abstract

This paper investigates the irreversibility of investments and the impact this has on the nature of the relationship between investment and uncertainty. The empirical analysis uses firm-level data and is based on a survey of 210 rice-milling firms in the Mekong River Delta in Vietnam, which was carried out during the year 2000. We show that uncertainty reduces investment of rice millers in the presence of irreversibility, as is predicted by the real options approach to investment. We do not find evidence that the negative association between uncertainty and investment is influenced by the degree of irreversibility.

Original languageEnglish
Pages (from-to)307-332
Number of pages26
JournalEconomics of Transition
Volume12
Issue number2
Publication statusPublished - 2004

Keywords

  • firm-level investment
  • uncertainty
  • irreversibility
  • Vietnam

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