Pursuing the wrong options? Adjustment costs and the relationship between uncertainty and capital accumulation

Stephen R. Bond, Mans Soderbom and Guiying Wu ()

Economics Letters, 2011, vol. 111, issue 3, 249-251

Abstract: Abel and Eberly (1999) prove that uncertainty has an ambiguous effect on long run capital accumulation in a real options model. We show that, with adjustment costs quadratic in investment, more uncertainty reduces capital and this effect may be large.

Keywords: Uncertainty; Real; options; Adjustment; costs; Capital; accumulation (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (4)

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Working Paper: Pursuing the Wrong Options? Adjustment Costs and the Relationship between Uncertainty and Capital Accumulation (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:111:y:2011:i:3:p:249-251

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