TAX UNCERTAINTIES AND THE INVESTMENT DECISION

This paper investigates how the firm's investment decision is affected by uncertainties in the tax laws under an asymmetric structure of income taxation. Tax liability is modelled as a call option, and tax uncertainties are modelled as randomness in the exercise price of the call option. The effects on the investment decision are derived by evaluating the comparative statics of the optimal investment level with respect to the volatility of the exercise price. The central result is that the disincentive effects of the tax uncertainties are generally exacerbated under the tax asymmetry.     

A STUDY OF POSSIBLE GAINS FROM INTERNATIONAL INVESTMENT AND THE STATIONARITY OF INTER-COUNTRY CORRELATION COEFFICIENTS: A REPLY

Previous studies have demonstrated that substantial benefits (beyond those available from a naive diversification strategy) were available to the international investor who could perfectly predict future inter-country correlation coefficients. The present author's second paper (Watson, 1980) tested the null hypothesis that the sample correlation coefficients were drawn from the same population. The fact that the null hypothesis was not rejected does not exclude the possibility, as Yallup correctly points out, that the data could be generated by another process.     

AN ECONOMIC ANALYSIS OF VALUE TO THE OWNER: A REPLY

Wright's comment criticises a previous article by this author on two grounds: (i) the deprived owner of the asset was not allowed to replace it in the short run: and (ii) only two variants of the concept were considered. This reply argues that the original analysis is consistent with asset replacement in the short run and that the concept of value to the owner and its variants have been developed for special situations. When the concept is applied to accounting issues, such as periodic income measurement, it is shown to be artificial and at variance with the facts of the real world.