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Irreversibility, Uncertainty, and Cyclical Investment

Listed author(s):
  • Ben S. Bernanke
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    This paper builds on the theory of irreversible choice under uncertainty to give an explanation of cyclical investment fluctuations. The key observation is that, when individual projects are irreversible, agents must make investment timing decisions that trade off the extra returns from early commitment against the benefits of increased information gained by waiting. In an environment in which the underlying stochastic structure is itself subject to random change, events whose long-run implications are uncertain can create an investment cycle by temporarily increasing the returns to waiting for information.

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    File URL: http://hdl.handle.net/10.2307/1885568
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    Article provided by Oxford University Press in its journal The Quarterly Journal of Economics.

    Volume (Year): 98 (1983)
    Issue (Month): 1 ()
    Pages: 85-106

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    Handle: RePEc:oup:qjecon:v:98:y:1983:i:1:p:85-106.
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