The Role of a Variable Input in the Relationship Between Investment and Uncertainty
AbstractFor a perfectly competitive firm with a constant returns to scale techenology, a greater price uncertainty has been shown to increase investment even in the presence of irrecersible investment. We show, however, that the option value generated by a one-time fixed cost can cause increasibg 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 97-98-11.
Length: 20 pages
Date of creation: 1997
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Postal: UNIVERSITY OF CALIFORNIA IRVINE, SCHOOL OF SOCIAL SCIENCES, IRVINECALIFORNIA 91717 U.S.A.
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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., 1996. "The Role of a Variable Input in the Relationship Between Investment and Uncertainty," Papers 96-97-08, California Irvine - School of Social Sciences.
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
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