Stochastic Capital Theory I. Comparative Statics

William Brock, Michael Rothschild () and Joseph Stiglitz

No 23, NBER Technical Working Papers from National Bureau of Economic Research, Inc

Abstract: Introductory lectures on capital theory often begin by analyzing the following problem: I have a tree which will be worth X(t) if cut down at time t. If the discount rate is r, when should the tree be cut down? What is the present value of such a tree? The answers to these questions are straightforward. Since at time t a tree which I plan to cut down at time T is worth e[to the power of rt]e[to the power of ?rT]X(T), I should choose the cutting date T* to maximize e[to the power of -rT]X(T); at t

Date: 1982-05
Note: ME
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Citations: View citations in EconPapers (2)

Published as pp. 591-622, 1989. MacMillan Press: LOndon. Joan Robinson and Modern Aconomic Theory

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