Irreversible investment and industry equilibrium (*)

Ioannis Karatzas () and Fridrik Baldursson ()
Additional contact information
Ioannis Karatzas: Departments of Mathematics and Statistics, Columbia University, New York, N.Y. 10027, USA

Finance and Stochastics, 1996, vol. 1, issue 1, 69-89

Abstract: We establish the equivalence of competitive industry equilibrium with a central planner's decision problem under uncertainty, when investment is irreversible. The existence of industry equilibrium is derived, and it is shown that myopic behavior on the part of small agents is harmless, in the sense that it leads to the same decisions as full rational expectations do. Our model is set in continuous time and allows for very general forms of randomness. The methods are based on the probabilistic approach to singular stochastic control theory and its connections with optimal stopping problems.

Keywords: Irreversible investment under uncertainty; industry equilibrium; optimality of myopic decisions; singular stochastic control; optimal stopping (search for similar items in EconPapers)
JEL-codes: D92 E22 G31 (search for similar items in EconPapers)
Date: 1996
Note: received: April 1996; final version received: September 1996
References: Add references at CitEc
Citations: View citations in EconPapers (41)

Downloads: (external link)
http://link.springer.de/link/service/journals/00780/papers/6001001/60010069.pdf (application/pdf)
http://link.springer.de/link/service/journals/0078 ... 01001/60010069.ps.gz (application/postscript)
Access to the full text of the articles in this series is restricted

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:finsto:v:1:y:1996:i:1:p:69-89

Ordering information: This journal article can be ordered from
http://www.springer. ... ance/journal/780/PS2

Access Statistics for this article

Finance and Stochastics is currently edited by M. Schweizer

More articles in Finance and Stochastics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().