Investment in Greek Manufacturing under Irreversibility and Uncertainty: the Message in Used Capital Expenditures

Abstract

This paper contributes to the existing literature by showing that uncertainty produces a non-uniform impact to the extent that different types of capital goods exhibit heterogeneous irreversibility, which we define as asset-specific irreversibility. Hence, asset-specific irreversibility is responsible for asymmetries in responses across types of capital goods to uncertainty. We also show that for a given type of capital good, uncertainty produces a variety of responses across sectors, which we define sector-specific irreversibility. In other words, sectoral differences in terms of the ability to substitute a given type of capital with labour, introduce a second-order effect of uncertainty on investment.