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- Title
INVESTMENT AND DEMAND UNCERTAINTY.
- Authors
Guiso, Luigi; Parigi, Giuseppe
- Abstract
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 the entrepreneurs. The results support the view that uncertainty weakens the response of investment to demand thus slowing down capital accumulation. Consistent with the predictions of the theory, there is considerable heterogeneity in the effect of uncertainty on investment: it is stronger for firms that cannot easily reverse investment decisions and for those with substantial market power. We show that the negative effect of uncertainty on investment cannot be explained by uncertainty proxying for liquidity constraints.
- Subjects
INVESTMENTS; MANUFACTURING industries; PROBABILITY theory; DISTRIBUTION (Probability theory); BUSINESSPEOPLE; SAVINGS; DECISION making; LIQUIDITY (Economics); INVESTMENT analysis
- Publication
Quarterly Journal of Economics, 1999, Vol 114, Issue 1, p185
- ISSN
0033-5533
- Publication type
Article
- DOI
10.1162/003355399555981