A Unified Model of Investment under Uncertainty
AbstractThis paper extends the theory of investment under uncertainty to incorporate fixed costs of investment, a wedge between the purchase price and sale price of capital, and potential irreversibility of investment. In this extended framework, investment is a nondecreasing function of q, the shadow price of installed capital. The optimal rate of investment is in one of three regimes (positive, zero, or negative gross investment), depending on the value of q relative to two critical values. In general, however, the shadow price q is not directly observable, so the authors present two examples relating q to observable variables. Copyright 1994 by American Economic Association.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 84 (1994)
Issue (Month): 5 (December)
Other versions of this item:
- Andrew B. Abel & Janice C. Eberly, . "A Unified Model of Investment Under Uncertainty," Rodney L. White Center for Financial Research Working Papers 14-93, Wharton School Rodney L. White Center for Financial Research.
- Andrew B. Abel & Janice C. Eberly, 1995. "A Unified Model of Investment Under Uncertainty," NBER Working Papers 4296, National Bureau of Economic Research, Inc.
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Caballero, Ricardo J, 1991. "On the Sign of the Investment-Uncertainty Relationship," American Economic Review, American Economic Association, vol. 81(1), pages 279-88, March.
- Robert S. Pindyck, 1991.
"Irreversibility, Uncertainty, and Investment,"
NBER Working Papers
3307, National Bureau of Economic Research, Inc.
- Pindyck, Robert S., 1990. "Irreversibility, uncertainty, and investment," Working papers 3137-90., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Pindyck, Robert, 1989. "Irreversibility, uncertainty, and investment," Policy Research Working Paper Series 294, The World Bank.
- Robert E. Lucas & Jr., 1967. "Adjustment Costs and the Theory of Supply," Journal of Political Economy, University of Chicago Press, vol. 75, pages 321.
- Rothschild, Michael, 1971. "On the Cost of Adjustment," The Quarterly Journal of Economics, MIT Press, vol. 85(4), pages 605-22, November.
- Sanford J. Grossman & Guy Laroque, 1988.
"Asset Pricing and Optimal Portfolio Choice in the Presence of Illiquid Durable Consumption Goods,"
NBER Working Papers
2369, National Bureau of Economic Research, Inc.
- Grossman, Sanford J & Laroque, Guy, 1990. "Asset Pricing and Optimal Portfolio Choice in the Presence of Illiquid Durable Consumption Goods," Econometrica, Econometric Society, vol. 58(1), pages 25-51, January.
- Sanford J Grossman & Guy Laroque, 2003. "Asset Pricing and Optimal Portfolio Choice in the Presence of Illiquid Durable Consumption Goods," Levine's Working Paper Archive 618897000000000803, David K. Levine.
- Fumio Hayashi, 1981.
"Tobin's Marginal q and Average a : A Neoclassical Interpretation,"
457, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-24, January.
- Eberly, J.C., 1990.
"Adjustment of Consumers'durables Stocks: Evidence from Automobile Purchases,"
Weiss Center Working Papers
22-91, Wharton School - Weiss Center for International Financial Research.
- Eberly, Janice C, 1994. "Adjustment of Consumers' Durables Stocks: Evidence from Automobile Purchases," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 403-36, June.
- Janice C. Eberly, . "Adjustment of Consumers' Durables Stocks: Evidence from Automobile Purchases," Rodney L. White Center for Financial Research Working Papers 22-91, Wharton School Rodney L. White Center for Financial Research.
- Abel, Andrew B & Blanchard, Olivier J, 1983.
"An Intertemporal Model of Saving and Investment,"
Econometric Society, vol. 51(3), pages 675-92, May.
- Lucas, Robert E, Jr & Prescott, Edward C, 1971. "Investment Under Uncertainty," Econometrica, Econometric Society, vol. 39(5), pages 659-81, September.
- Abel, Andrew B, 1983. "Optimal Investment under Uncertainty," American Economic Review, American Economic Association, vol. 73(1), pages 228-33, March.
- Bertola, Guiseppe & Caballero, Ricardo J, 1994.
"Irreversibility and Aggregate Investment,"
Review of Economic Studies,
Wiley Blackwell, vol. 61(2), pages 223-46, April.
- Mussa, Michael L, 1977. "External and Internal Adjustment Costs and the Theory of Aggregate and Firm Investment," Economica, London School of Economics and Political Science, vol. 44(174), pages 163-78, May.
- Lam, Pok-sang, 1989. "Irreversibility and consumer durables expenditures," Journal of Monetary Economics, Elsevier, vol. 23(1), pages 135-150, January.
- Treadway, Arthur B, 1969. "On Rational Entrepreneurial Behaviour and the Demand for Investment," Review of Economic Studies, Wiley Blackwell, vol. 36(106), pages 227-39, April.
- Brunner, Karl & Meltzer, Allan H., 1980. "On the state of macroeconomics," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 12(1), pages 1-5, January.
- Pindyck, Robert S, 1982. "Adjustment Costs, Uncertainty, and the Behavior of the Firm," American Economic Review, American Economic Association, vol. 72(3), pages 415-27, June.
- Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading lists or Wikipedia pages:
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Voros) or (Michael P. Albert).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.