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Stochastic Capital Theory I. Comparative Statics

Listed author(s):
  • William A. Brock
  • Michael Rothschild
  • Joseph E. Stiglitz

Introductory lectures on capital theory often begin by analyzing the following problem: I have a tree which will be worth X(t) if cut down at time t. If the discount rate is r, when should the tree be cut down? What is the present value of such a tree? The answers to these questions are straightforward. Since at time t a tree which I plan to cut down at time T is worth e[to the power of rt]e[to the power of ?rT]X(T), I should choose the cutting date T* to maximize e[to the power of -rT]X(T); at t

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Technical Working Papers with number 0023.

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Date of creation: May 1982
Publication status: published as pp. 591-622, 1989. MacMillan Press: LOndon. Joan Robinson and Modern Aconomic Theory
Handle: RePEc:nbr:nberte:0023
Note: ME
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