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Integrated Production And The Investment–Uncertainty Relationship

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  • Yingyi Tsai
  • Ching‐tang Wu

Abstract

This paper studies the role of production mode in determining the effects of an increase in uncertainty on the choice of investment outlay. In a continuous‐time model of optimal capital investment with innovative R&D under demand uncertainty, we show that investments in both capital and innovative research decrease with an increase in uncertainty, and that such investments rise with the level of primary demand. Our result sheds light on the mode of production as a source of the negative investment–uncertainty relationship.

Suggested Citation

  • Yingyi Tsai & Ching‐tang Wu, 2009. "Integrated Production And The Investment–Uncertainty Relationship," South African Journal of Economics, Economic Society of South Africa, vol. 77(1), pages 102-112, March.
    • Handle: RePEc:bla:sajeco:v:77:y:2009:i:1:p:102-112
    DOI: 10.1111/j.1813-6982.2009.01197.x
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    1. Tsai, Yingyi & Lin, Justin Yifu & Kurekova, Lucia, 2009. "Innovative R&D and optimal investment under uncertainty in high-tech industries: An implication for emerging economies," Research Policy, Elsevier, vol. 38(8), pages 1388-1395, October.

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