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Investment under economic and implementation uncertainty
Author(s) -
Tsekrekos Andrianos E.
Publication year - 2001
Publication title -
randd management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.253
H-Index - 102
eISSN - 1467-9310
pISSN - 0033-6807
DOI - 10.1111/1467-9310.00203
Subject(s) - profitability index , generality , investment (military) , resolution (logic) , economics , uncertainty analysis , microeconomics , actuarial science , risk analysis (engineering) , business , computer science , finance , simulation , management , politics , political science , law , artificial intelligence
Some investment decisions are exposed to uncertainty over their implementation phase apart from the underlying economic uncertainty. We provide a general way of introducing implementation uncertainty, which includes prior research as a special case. The generality of our treatment stems from the fact that implementation uncertainty is allowed to affect both the level and the timing of project profitability. In a case explicitly addressed, implementation uncertainty might even cause earlier investment if the probability of uncertainty resolution exceeds the opportunity cost of delaying investment. Investment will be earlier, the higher the effect of uncertainty resolution on project profitability.