Wait-and-See: Investment Options under Policy Uncertainty

Nancy L. Stokey

doi:10.3386/w19630

Wait-and-See: Investment Options under Policy Uncertainty

Nancy L. Stokey

Working Paper 19630

DOI 10.3386/w19630

Issue Date November 2013

This paper develops a model of investment decisions in which uncertainty about a one-time change in tax policy induces the firm to temporarily stop investing--to adopt a wait-and-see policy. After the uncertainty is resolved, the firm exploits the tabled projects, generating a temporary investment boom.

An early version of this paper, "Uncertainty and Investment Delays," was given as the Hahn Lecture at the 2012 Royal Economic Society Meetings, at the University of Cambridge. I am grateful to Francesco Caselli, Patrick Kehoe, Robert E. Lucas, Jr., and Juan Pablo Nicolini for helpful comments on several intervening drafts. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.
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Nancy L. Stokey, "Wait-and-See: Investment Options under Policy Uncertainty," NBER Working Paper 19630 (2013), https://doi.org/10.3386/w19630.

Wait-and-See: Investment Options under Policy Uncertainty

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