Investment and uncertainty with recursive preferences
No 127, Working Papers from Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali
This paper analyses the relationship between uncertainty and investment when firms are risk averse and have a costant return to scale technology. Using recursive preferences, the paper demonstrates that not only the degree of risk aversion is important in determining the sign of the investment uncertainty relationship but that the intertemporal substitution elasticity also plays a crucial role. The model presented suggests the existence of a positive relationship between investment and uncertainty for reasonable values of the parameters. In the second part of the paper we extend the analysis taking into consideration the presence of adjustment costs in the investment process. Except for particular values of the preference parameters, the uncertainty-investment relationship has a not a definite sign anymore.
References: Add references at CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed
Downloads: (external link)
http://docs.dises.univpm.it/web/quaderni/pdf/127.pdf First version, 2000 (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:anc:wpaper:127
Access Statistics for this paper
More papers in Working Papers from Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali Contact information at EDIRC.
Bibliographic data for series maintained by Maurizio Mariotti ().