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Production and Investment Decisions under Sunk Cost and Temporal Uncertainty
American Journal of Agricultural Economics
Vol. 76, No. 1 (Feb., 1994), pp. 114-127
Stable URL: http://www.jstor.org/stable/1243926
Page Count: 14
You can always find the topics here!Topics: Sunk costs, Financial investments, Capital investments, Prices, Economic capital, Investment decisions, Risk aversion, Rental value, Market prices, Investment risk
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Building on Glenn Johnson's asset fixity theory, this article introduces sunk cost and temporal uncertainty in Jorgenson's neoclassical theory of investment. Under the assumption of risk neutrality, we show how sunk cost and temporal risk affect the implicit rental value of capital and investment and entry-exit decisions. Results suggest there are important interactions between sunk cost and the effects of temporal uncertainty on production behavior.
American Journal of Agricultural Economics © 1994 Agricultural & Applied Economics Association