If you need an accessible version of this item please contact JSTOR User Support

A Unified Model of Investment Under Uncertainty

Andrew B. Abel and Janice C. Eberly
The American Economic Review
Vol. 84, No. 5 (Dec., 1994), pp. 1369-1384
Stable URL: http://www.jstor.org/stable/2117777
Page Count: 16
  • Download PDF
  • Cite this Item

You are not currently logged in.

Access your personal account or get JSTOR access through your library or other institution:

login

Log in to your personal account or through your institution.

If you need an accessible version of this item please contact JSTOR User Support
A Unified Model of Investment Under Uncertainty
Preview not available

Abstract

This paper extends the theory of investment under uncertainty to incorporate fixed costs of investment, a wedge between the purchase price and sale price of capital, and potential irreversibility of investment. In this extended framework, investment is a nondecreasing function of q, the shadow price of installed capital. The optimal rate of investment is in one of three regimes (positive, zero, or negative gross investment), depending on the value of q relative to two critical values. In general however, the shadow price q is not directly observable, so we present two examples relating q to observable variables.

Page Thumbnails

  • Thumbnail: Page 
1369
    1369
  • Thumbnail: Page 
1370
    1370
  • Thumbnail: Page 
1371
    1371
  • Thumbnail: Page 
1372
    1372
  • Thumbnail: Page 
1373
    1373
  • Thumbnail: Page 
1374
    1374
  • Thumbnail: Page 
1375
    1375
  • Thumbnail: Page 
1376
    1376
  • Thumbnail: Page 
1377
    1377
  • Thumbnail: Page 
1378
    1378
  • Thumbnail: Page 
1379
    1379
  • Thumbnail: Page 
1380
    1380
  • Thumbnail: Page 
1381
    1381
  • Thumbnail: Page 
1382
    1382
  • Thumbnail: Page 
1383
    1383
  • Thumbnail: Page 
1384
    1384