Investment, irreversibility and financial imperfections: the rush to invest and the option to wait

Richard Holt

Economics Bulletin, 2007, vol. 5, issue 10, 1-10

Abstract: The impact of combinations of frictions on investment activity is poorly understood. We develop a model of investment under financial frictions and irreversibility. We show that the possibility of encountering financial constraints in future raises irreversible investment today over that arising under irreversibility alone. By contrast, investment under both frictions is lower than under future financial constraints alone.

JEL-codes: D9 E2 (search for similar items in EconPapers)
Date: 2007-05-02
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