Investment and conditional uncertainty: The role of market power, irreversibility, and returns-to-scale

Market power, irreversibility and returns-to-scale decisively determine how uncertainty affects investment. We empirically show that this relationship is positive when deviations from the Neoclassical paradigm are absent. As frictions are introduced the positive sign gradually dies out and turns negative. (c) 2006 Elsevier B.V. All rights reserved.