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Investment under uncertainty: The nature of demand shocks and the expected profitability of capital

  • Gil, Pedro Mazeda

This paper analyses the disparity regarding the sign of the investment–uncertainty relationship in models of investment under symmetric adjustment costs. That sign is determined by the shape of the profit function, which is related to the nature of demand shocks.

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File URL: http://www.sciencedirect.com/science/article/pii/S0165176511003909
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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 114 (2012)
Issue (Month): 2 ()
Pages: 154-156

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Handle: RePEc:eee:ecolet:v:114:y:2012:i:2:p:154-156
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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  1. Xin Guo & Jianjun Miao & Erwan Morellec, 2002. "Irreversible Investment with Regime Shifts," FAME Research Paper Series rp99, International Center for Financial Asset Management and Engineering.
  2. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  3. 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.
  4. Hartman, Richard, 1972. "The effects of price and cost uncertainty on investment," Journal of Economic Theory, Elsevier, vol. 5(2), pages 258-266, October.
  5. Nick Bloom & Stephen Bond & John Van Reenen, 2007. "Uncertainty and Investment Dynamics," Review of Economic Studies, Oxford University Press, vol. 74(2), pages 391-415.
  6. Bontempi, Maria Elena & Golinelli, Roberto & Parigi, Giuseppe, 2010. "Why demand uncertainty curbs investment: Evidence from a panel of Italian manufacturing firms," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 218-238, March.
  7. Pindyck, Robert S., 1986. "Irreversible investment, capacity choice, and the value of the firm," Working papers 1802-86., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  8. Andrew B. Abel & Janice C. Eberly, 1995. "The Effects of Irreversibility and Uncertainty on Capital Accumulation," NBER Working Papers 5363, National Bureau of Economic Research, Inc.
  9. Abel, Andrew B, 1983. "Optimal Investment under Uncertainty," American Economic Review, American Economic Association, vol. 73(1), pages 228-33, March.
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