Investment, Underinvestment and Imperfect Capital Markets
Elie Appelbaum and
Working Paper from Economics Department, Queen's University
This paper characterizes precisely the optimal capital policy for a firm facing a non-price rationing constraint in the market for investment funds. With this particular capital market imperfection firms may generally 'overinvest' relative to a perfect market case, rather than underinvest as conventional wisdom suggests. Underinvestment occurs, if at all, in the initial stages of an optimal policy.
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:202
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