1999
Abstract:
Focusing on the relevance of the modern investment theory in explaining movements in office-commercial construction, we attempt to advance existing empirical work in two respects. First,
building on recent theoretical advances, we offer an extended empirical model of new
construction that accounts for the full opportunity cost of irreversible investments in uncertain
environments. Second, using updated time-series of office-commercial construction across the
nation's largest markets, we empirically estimate such a model to (i) explore investment
behavior during 1982-1998 and (ii) detect differences, if any, in such behavior between the preand post-recession years. Our empirical findings are fully consistent with the theory of
irreversible investments. Such findings highlight both the relevance and relative importance of
uncertainty in underlying demand factors in shaping movements in office-commercial
construction, while pointing altogether to a more cautionary investment behavior during the
post-recession years.
