A Putty-Clay Model of Demand Uncertainty and Investment

James Albrecht and Albert G. Hart
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Albert G. Hart: Research Institute of Industrial Economics (IFN)

No 20, Working Paper Series from Research Institute of Industrial Economics

Abstract: This paper uses a simple model to explore the effects of "increasing demand risk" on business fixed investment. We show that within a putty-clay framework an increase in demand uncertainty can be expected to have two countervailing effects. On the one hand increasing risk tends to induce a firm to increase its capacity, but on the other hand the optimal capital intensity of that capacity decreases.

Keywords: Firm investment; Firm strategy; Production (search for similar items in EconPapers)
JEL-codes: D92 L11 (search for similar items in EconPapers)
Pages: 15 pages
Date: 1979-12, Revised 1982-04
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:iuiwop:0020

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