The Role of a Variable Input in the Relationship between Investment and Uncertainty
AbstractCaballero (1991) shows that a larger uncertainty only increases the investment of a perfectly competitive firm with a constant returns to scale technology. We show, however, that the option value generated by a one-time fixed cost can cause the increasing uncertainty to reduce investment from a positive value to zero.
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 90 (2000)
Issue (Month): 3 (June)
Other versions of this item:
- Lee, J. & Shin, K., 1996. "The Role of a Variable Input in the Relationship Between Investment and Uncertainty," Papers 96-97-08, California Irvine - School of Social Sciences.
- Lee, J. & Shin, K., 1997. "The Role of a Variable Input in the Relationship Between Investment and Uncertainty," Papers 97-98-11, California Irvine - School of Social Sciences.
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
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