Investment under Uncertainty, Irreversibility and the Arrival of Information over Time

Michel Demers ()

Review of Economic Studies, 1991, vol. 58, issue 2, pages 333-50

Abstract: In this paper, the author considers a risk-neutral competitive firm which is uncertain about the true state of demand. He builds upon K. J. Arrow (1968) by demonstrating that the irreversibility of investment in physical capital together with the anticipation of receiving information and of learning the state of demand lead to (1) cautious investment behavior and, hence, to lower investment levels; (2) a time-varying risk premium or marginal "adjustment cost"; and (3) a gradual adjustment of the capital stock to the desired level. Copyright 1991 by The Review of Economic Studies Limited.

Date: 1991
References: Add references at CitEc
Citations View citations in EconPapers (38) Track citations by RSS feed

Downloads: (external link)
http://links.jstor.org/sici?sici=0034-6527%2819910 ... 0.CO%3B2-4&origin=bc full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:bla:restud:v:58:y:1991:i:2:p:333-50

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0034-6527

Access Statistics for this article

Review of Economic Studies is edited by Andrea Prat, Bruno Biais, Kjetil Storesletten and Enrique Sentana

More articles in Review of Economic Studies from Wiley Blackwell
Series data maintained by Wiley-Blackwell Digital Licensing ().