Stochastic Capital Theory I. Comparative Statics
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
|Date of creation:||May 1982|
|Date of revision:|
|Publication status:||published as pp. 591-622, 1989. MacMillan Press: LOndon. Joan Robinson and Modern Aconomic Theory|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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