Bayesian Learning and the Optimal Investment Decision of the Firm

Ian Tonks

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: This paper is about learning. It illustrates how in a two period allocation problem with uncertainty in each period, an economic agent's decisions are influenced by the knowledge that he is able to learn about the uncertainty. The time periods are linked through the learning process of the economic agent. The problem to be analysed is that faced by a firm deciding whether or not to invest in a new technology or production process, whose returns are not known with certainty. Because of the two period environment, the firm is able to experiment with the new process in the first period, and observe the results before making another investment decision at the beginning of the second. Goven the opportunity for learning, how will this affect the decision of the firm in the first period?

Pages: 36 pages
Date: 1981
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https://warwick.ac.uk/fac/soc/economics/research/w ... 78-1988/twerp192.pdf

Related works:
Journal Article: Bayesian Learning and the Optimal Investment Decision of the Firm (1983)
Working Paper: Bayesian Learning and the Optimal Investment Decision of the Firm (1981)
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:192

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