Flexibilty and Uncertainty
The preserving of flexibility when faced with uncertainty is a neglected aspect of behaviour under risk. Yet it is an important factor in decisions to hold liquid assets or delay irreversible investment. This paper formalizes the notion of flexibility in a sequential decision context, and relates its value to the amount of information an agent expects to receive. A rudimentary money demand model is developed embodying these ideas, and the history of flexibility as an economic concept is traced.
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References listed on IDEAS
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- Nickell, Stephen J, 1977. "The Influence of Uncertainty on Investment," Economic Journal, Royal Economic Society, vol. 87(345), pages 47-70, March.
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- George Stigler, 1939. "Production and Distribution in the Short Run," Journal of Political Economy, University of Chicago Press, vol. 47, pages 305-305.
- Smith, Kenneth R., 1969. "The effect of uncertainty on monopoly price, capital stock and utilization of capital," Journal of Economic Theory, Elsevier, vol. 1(1), pages 48-59, June.
- Abrassart, A Eugene & McFarlane, Dale D, 1974. "The Economics of Environmental Preservation: Comment," American Economic Review, American Economic Association, vol. 64(6), pages 1025-1029, December. Full references (including those not matched with items on IDEAS)
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