Optimal investment policy with fixed adjustment costs and complete irreversibility

Nicolas Roys

Economics Letters, 2014, vol. 124, issue 3, 416-419

Abstract: We develop and characterize analytically an investment model in discrete time with a fixed adjustment cost not proportional to existing capital and complete irreversibility that reproduces the lumpiness of investment at the micro-level. In agreement with the empirical evidence, as a firm size increases, investment becomes less lumpy. The optimal policy is of the generalized (S,s) form.

Keywords: Investment; Adjustment costs; Irreversibility; Dynamic programming (search for similar items in EconPapers)
JEL-codes: C61 D21 E2 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (1)

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Working Paper: Optimal investment policy with fixed adjustment costs and complete irreversibility (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:124:y:2014:i:3:p:416-419

DOI: 10.1016/j.econlet.2014.06.026

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