Optimal Investment in the Presence of Investment Shock and Congestion
This paper develops a dynamic overlapping-generations model in the presence of investment shocks and aims to understand how social welfare is affected by the investment decision of the firm and by the time of demand of the consumers. By simulating the model, I find that to maximize social welfare a considerable proportion of consumers should postpone their demand. Rational consumers, in fact, react to congestion by shifting their demand to the next period, whenever there is a positive shock affecting the investment function. However, policy-makers should consider policies favouring investment very carefully, since investment affects social welfare via a bell-shaped function.
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Volume (Year): 164 (2008)
Issue (Month): 2 (June)
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- Kwanho Shin & Jaewoo Lee, 2000.
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- Stokey, Nancy L, 1998. "Are There Limits to Growth?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(1), pages 1-31, February.
- Jerome Adda & Russell W. Cooper, 2003. "Dynamic Economics: Quantitative Methods and Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262012014.
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