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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References listed on IDEAS
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- 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.
- Lee, J. & Shin, K., 1997. "The Role of a Variable Input in the Relationship Between Investment and Uncertainty," Papers 97-98-11, California Irvine - School of Social Sciences.
- Jerome Adda & Russell W. Cooper, 2003. "Dynamic Economics: Quantitative Methods and Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262012014, July.
- John Haltiwanger & Russell Cooper & Laura Power, 1999. "Machine Replacement and the Business Cycle: Lumps and Bumps," American Economic Review, American Economic Association, vol. 89(4), pages 921-946, September.
- Russell Cooper & John Haltiwanger & Laura Power, 1995. "Machine Replacement and the Business Cycle: Lumps and Bumps," NBER Working Papers 5260, National Bureau of Economic Research, Inc.
- Russell Cooper & John Haltiwanger & Laura Power, 1995. "Machine Replacement and the Business Cycle: Lumps and Bumps," Papers 0062, Boston University - Industry Studies Programme.
- 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. Full references (including those not matched with items on IDEAS)
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