Pursuing the wrong options? Adjustment costs and the relationship between uncertainty and capital accumulation
AbstractAbel and Eberly (1999) prove that uncertainty has an ambiguous effect on long run capital accumulation in a real options model. We show that, with adjustment costs quadratic in investment, more uncertainty reduces capital and this effect may be large.
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Bibliographic InfoArticle provided by Elsevier in its journal Economics Letters.
Volume (Year): 111 (2011)
Issue (Month): 3 (June)
Contact details of provider:
Web page: http://www.elsevier.com/locate/ecolet
Uncertainty Real options Adjustment costs Capital accumulation;
Other versions of this item:
- Bond, Stephen R. & Söderbom, Måns & Wu, Guiying, 2010. "Pursuing the Wrong Options? Adjustment Costs and the Relationship between Uncertainty and Capital Accumulation," Working Papers in Economics 449, University of Gothenburg, Department of Economics.
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Financing, Investment, and Capacity
- E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
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- Guiying (Laura) Wu, 2013. "Investment Frictions and the Aggregate Output Loss in China," Economic Growth centre Working Paper Series 1307, Nanyang Technolgical University, School of Humanities and Social Sciences, Economic Growth centre.
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