The Role of a Variable Input in the Relationship Between Investment and Uncertainty

Caballero (1991) shows that a larger uncertainty only increases the investment of a perfectly competitive firm with a constant returns to scale technology. We show, however, that the option value generated by a one-time fixed cost can cause the increasing uncertainty to reduce investment from a positive value to zero.

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Year of publication:	1996
Authors:	Lee, J. ; Shin, K.
Institutions:	California Irvine - School of Social Sciences
Subject:	INVESTMENTS \| UNCERTAINTY \| LABOUR INTENSITY

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Series:	California Irvine - School of Social Sciences.
Type of publication:	Book / Working Paper
Notes:	35 pages
Classification:	E22 - Capital; Investment (including Inventories); Capacity
Source:	RePEc - Research Papers in Economics

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