Increasing optimism and demand uncertainty

Julien Prat

Economics Bulletin, 2005, vol. 12, issue 10, 1-8

Abstract: By allowing the initial prior over market size to be a mixture of distributions, this paper extends the model of irreversible investment under uncertainty proposed by Rob (1991). We find that capacity expansion fuels investors' optimism. It is shown in the paper that the crash is always preceded by a boom when the initial prior is a mixture of exponential distributions.

Keywords: Learning; Investment; Uncertainty (search for similar items in EconPapers)
JEL-codes: D8 L1 (search for similar items in EconPapers)
Date: 2005-06-15
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