Publication: Political risk and irreversible investment
Program
KU-Authors
KU Authors
Co-Authors
Demers, Fanny S.
Demers, Michel
Publication Date
Language
Type
Embargo Status
Journal Title
Journal ISSN
Volume Title
Alternative Title
Abstract
The objective of this article is two-fold. First, we develop a theoretical model to investigate the impact of political risk on irreversible investment. Second, we apply our model to an analysis of the effects of risk of separation of the province of Quebec from the Canadian federation. We model the probability of a regime switch using the properties of the electoral process and examine the response of investment to changes in the risk of separation. We consider the impact of investors' perception of the risk of separation and financial market volatility separately. We show that political risk has a depressing impact on investment even if the "bad" regime has never been observed in the sample.
Source
Publisher
Oxford University Press (OUP)
Subject
Economics
Citation
Has Part
Source
Cesifo Economic Studies
Book Series Title
Edition
DOI
10.1093/cesifo/ifm014