On the investment-uncertainty relationship in a real options model

It appears to be widely accepted in the real options literature that an increase in uncertainty should have an inhibiting effect on investment. Our article demonstrates that the notion of a negative uncertainty-investment relationship is not always correct. We show that in certain situations, an increase in uncertainty can actually increase the probability of investing, and thereby have a positive impact on investment. (C) 2000 Elsevier Science B.V. All rights reserved. JEL classification: C6; E2.