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 InfoPaper provided by California Irvine - School of Social Sciences in its series Papers with number 96-97-08.
Length: 35 pages
Date of creation: 1996
Date of revision:
Contact details of provider:
Postal: UNIVERSITY OF CALIFORNIA IRVINE, SCHOOL OF SOCIAL SCIENCES, IRVINECALIFORNIA 91717 U.S.A.
INVESTMENTS; UNCERTAINTY; LABOUR INTENSITY;
Other versions of this item:
- Kwanho Shin & Jaewoo Lee, 2000. "The Role of a Variable Input in the Relationship between Investment and Uncertainty," American Economic Review, American Economic Association, vol. 90(3), pages 667-680, June.
- 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
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