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Universidad EAFIT
Carrera 49 # 7 sur -50 Medellín Antioquia Colombia
Carrera 12 # 96-23, oficina 304 Bogotá Cundinamarca Colombia
(57)(4) 2619500
EAFITEscuelasEscuela de Economía y FinanzasEsc. de Economía y Finanzas / Bulletin NewsExpropriation risk, investment decisions and economic sectors

​publicaciones científicas / 14/12/2015

Expropriation risk, investment decisions and economic sectors​

​Diana C. Restrepo Ochoa, Ricardo Correia, , Juan Ignacio Peñaa, & Javier Población


We build a Real Options model to assess the importance of private provision and the impact of expropriation risk on investment timing, business values, governmental costs and social welfare. We consider two types of businesses (essential and non-essential) and two stages (operating businesses and investment opportunities) and answer questions regarding three main topics: the firm's reaction to expropriation risk, the government drivers to expropriate, and the welfare costs of expropriation. Our results show that responding to expropriation risk the private investor is driven to suboptimal investment decisions. When we endogenize the reputational costs of expropriation, our results show that the decision of the government to expropriate largely depends on the type of business being targeted. In terms of welfare, our results show that expropriation is always associated with a loss.​


Ochoa, D. C. R​., Correia, R., Peña, J. I., & Población, J. (2015). Expropriation risk, investment decisions and economic sectors. Economic Modelling.​ doi:10.1016/j.econmod.2014.11.005​