Trigger Values of (Non-) Residential Structures and Equipment Investment

Trigger values are derived for investment projects that are affected by (i) uncertainty (according to Dixit and Pindyck, 1994) and (ii) construction periods (see Majd and Pindyck, 1987). The values are compared theoretically with trigger values for projects with rather certain returns, as well as with projects that can be obtained without long delays. Simulation results show the importance of the mixed effect of uncertainty and time-to-build on the decision to invest. Empirical results obtained with national (non-) residential structures and equipment data corroborate the importance of both aspects. The main conclusion is that time-to-build projects faced with uncertainty, like non-residential structures, seem to be affected disproportionally more than projects that do not have either of these aspects.