Uncertainty and Learning in International Joint Ventures

Abstract

This study deals with the potential interplays between two uncertainty types (endogenous vs. exogenous uncertainty) and the role of learning in joint ventures (JVs) from the real options perspective. Regarding the role of learning under different types of uncertainty in JVs, one stream of real options research argues that learning has nothing to do with investment decision, while the other stream of research argues that investment decision is endogenous to learning. Considering that investment decisions embedded in JVs are affected by endogenous uncertainty (e.g., partner uncertainty) and exogenous uncertainty (e.g., demand uncertainty), this study suggests a conceptual model which takes into account the impact of endogenous uncertainty and firm’s learning of JV partners and market demand on real options value and exercise. Since almost all real options research focuses on exogenous uncertainty and less study learning under the real options framework, we add to this literature by touching upon possible roles of endogenous uncertainty and learning in driving firm’s strategic choices.