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News About News: Information Arrival and Irreversible Investment

Published online by Cambridge University Press:  01 September 1999

Allan Drazen  and
Plutarchos Sakellaris
Allan Drazen
Affiliation:
University of Maryland and NBER
Plutarchos Sakellaris
Affiliation:
University of Maryland
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Abstract

We analyze how uncertainty about when information about future returns to a project may be revealed affects investment. Whereas good news about future returns boosts investment, good news about news (that is, news that information may arrive sooner) is shown to depress investment. We show that early revelation increases the value of an irreversible investment project to a risk-neutral investor. Our framework allows us to study irreversible investment projects whose value has a time-variable volatility. We also consider how heterogeneity of revelation information across firms may induce a better-informed firm to share its information with competitors.

Keywords

InvestmentIrreversibilityRevelationUncertainty
Type
Research Article
Information
Macroeconomic Dynamics , Volume 3 , Issue 3 , September 1999 , pp. 451 - 462
Copyright
© 1999 Cambridge University Press

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