INTEGRATED PRODUCTION AND THE INVESTMENT–UNCERTAINTY RELATIONSHIP

Yingyi Tsai and Ching‐tang Wu

South African Journal of Economics, 2009, vol. 77, issue 1, 102-112

Abstract: This paper studies the role of production mode in determining the effects of an increase in uncertainty on the choice of investment outlay. In a continuous‐time model of optimal capital investment with innovative R&D under demand uncertainty, we show that investments in both capital and innovative research decrease with an increase in uncertainty, and that such investments rise with the level of primary demand. Our result sheds light on the mode of production as a source of the negative investment–uncertainty relationship.

Date: 2009
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https://doi.org/10.1111/j.1813-6982.2009.01197.x

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Persistent link: https://EconPapers.repec.org/RePEc:bla:sajeco:v:77:y:2009:i:1:p:102-112

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