Investment under uncertainty and the threat of nationalization

Dimitrios Zormpas is an assistant professor at the Department of Economics of the University of Macedonia in Thessaloniki, Greece since September 2024. Before that, he was an assistant professor at the University of Crete from July 2022 to August 2024. he has also had the opportunity to work as a postdoctoral researcher at various institutions, including CY Cergy Paris Université (as a junior fellow), the University of Brescia, the University of Bologna, and the University of Padova, where he also earned my Ph.D. in Real Estate Appraisal and Land Economics. His research focuses on Investment Theory, Energy Economics, Environmental and Natural Resource Economics, and Real Options.

He is visiting the Institute CY Advanced Studies thanks to a top publication award he received from THEMA for the paper: Investment in farming under uncertainty and decoupled support: a real options approach, European Review of Agricultural Economics, Volume 49, Issue 4, September 2022, Pages 876–909, https://doi.org/10.1093/erae/jbac002 which he published back in 2022 during his stay in the Institute CY Advanced Studies.

This presentation considers the case of a multinational corporation who holds the option to invest in a foreign country. The company incurs the investment cost and gains access to a volatile profit flow once the project becomes operational. The cost is entirely sunk so the investor must account, not only for uncertain market conditions, but also for the threat of nationalization by the local government. By employing a dynamic model that incorporates both market uncertainty and political risk we determine the optimal timing for investment and nationalization, as well as the appropriate scale of the investment. We show that a reduction in the nationalization cost induces earlier but also smaller investment and also earlier nationalization. Our findings provide a theoretical explanation for the empirical observation that investors do not necessarily avoid industries susceptible to nationalization. We argue that the threat of nationalization leads to premature and undersized investments, rather than deterring them entirely.

Date : 24 juin 2025 de 15h30 à 16h30

La guest lecture hybride est organisée en présence dans la salle de réunion H008 de la MIR à Neuville-sur-Oise et à distance sur Zoom.

Pour participer à la guest lecture à distance, connectez-vous sur Zoom : https://cyu-fr.zoom.us/j/99072338379

La vidéo sera publiée sur la chaîne YouTube de CY AS