POLITICAL-INSTITUTIONS AND ELECTRIC UTILITY INVESTMENT - A CROSS-NATION ANALYSIS

The likelihood that a government will meet its promises varies with th e structure of a nation's political institutions. Where multiple indep endent actors wield veto power over potential policy changes, macroeco nomic, tax, and regulatory stability will be enhanced-thus reducing th e variance on an investment project's expected return. This relationsh ip is shown to hold for an industry with extremely high sunk costs and politicization, namely, electric utilities. Managers considering inve stment in infrastructure projects should therefore evaluate the invest ment proposal not only on its explicit terms, but also on the likeliho od that the government will honor them.