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Stochastic Capital Theory I. Comparative Statics

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  • William A. Brock
  • Michael Rothschild
  • Joseph E. Stiglitz

Abstract

Introductory lectures on capital theory often begin by analyzing the following problem: I have a tree which will be worth X(t) if cut down at time t. If the discount rate is r, when should the tree be cut down? What is the present value of such a tree? The answers to these questions are straightforward. Since at time t a tree which I plan to cut down at time T is worth e[to the power of rt]e[to the power of ?rT]X(T), I should choose the cutting date T* to maximize e[to the power of -rT]X(T); at t

Suggested Citation

  • William A. Brock & Michael Rothschild & Joseph E. Stiglitz, 1982. "Stochastic Capital Theory I. Comparative Statics," NBER Technical Working Papers 0023, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberte:0023
    Note: ME
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    Cited by:

    1. Andréa Mannberg, 2012. "Risky Sex in a Risky World: Sexual Behavior in an HIV/AIDS Environment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(2), pages 296-322, June.
    2. Jean-Daniel Saphores, 2004. "Barriers and Optimal Investment," GE, Growth, Math methods 0410009, University Library of Munich, Germany.

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