The Role of a Variable Input in the Relationship Between Investment and Uncertainty
For a perfectly competitive firm with a constant returns to scale techenology, a greater price uncertainty has been shown to increase investment even in the presence of irrecersible investment. We show, however, that the option value generated by a one-time fixed cost can cause increasibg uncertainty to reduce investment from a positive value to zero.
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|Date of creation:||1997|
|Date of revision:|
|Contact details of provider:|| Postal: UNIVERSITY OF CALIFORNIA IRVINE, SCHOOL OF SOCIAL SCIENCES, IRVINECALIFORNIA 91717 U.S.A.|
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