The Role of a Variable Input in the Relationship Between Investment and Uncertainty

Jaewoo Lee and K. Shin

Working Papers from California Irvine - School of Social Sciences

Abstract: For a perfectly competitive firm with a constant returns to scale techenology, a greater price uncertainty has been shown to increase investment even in the presence of irrecersible investment. We show, however, that the option value generated by a one-time fixed cost can cause increasibg uncertainty to reduce investment from a positive value to zero.

Keywords: INVESTMENTS; RISK (search for similar items in EconPapers)
JEL-codes: E22 (search for similar items in EconPapers)
Pages: 20 pages
Date: 1997
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Related works:
Journal Article: The Role of a Variable Input in the Relationship between Investment and Uncertainty (2000)
Working Paper: The Role of a Variable Input in the Relationship Between Investment and Uncertainty (1996)
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Persistent link: https://EconPapers.repec.org/RePEc:fth:calirv:97-98-11

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