Di Corato, Luca
- Institutionen för ekonomi, Sveriges lantbruksuniversitet
Sammanfattning
In the literature investigating the impact of uncertainty on short-run and long-run investment, most authors have used a log linear profit function. This functional form has been generally considered a reasonable approximation for a more general one and has the advantage of providing closed form solutions for both short-run investment rule and long-run rate of capital accumulation. In this paper, we consider the profit function for the case of a monopolistic firm facing a linear demand function with additive shocks. Under this assumption, analytical solutions, for both short-run investment rule and long-run rate of capital accumulation, are not available. We then 1) propose an analytical approximation of the short-run investment rule and 2) show how such approximation can be used in order to derive the corresponding i) steady-state distribution of the optimal stock of capital and ii) the long-run average rate of capital accumulation. Finally, we compare the long-run rates of capital accumulation calculated under both profit function specifications. We find that, within a plausible range of parameter values, the two rates are significantly different. Hence, we conclude that the choice of a log linear functional form has a non-trivial impact on the magnitude of the long run rate of capital accumulation. (C) 2014 Elsevier B.V. All rights reserved.
Nyckelord
Investment; Demand uncertainty; Irreversibility; Real options
Publicerad i
Economic Modelling
2014, volym: 41, sidor: 80-89
Utgivare: ELSEVIER SCIENCE BV
SLU författare
UKÄ forskningsämne
Nationalekonomi
Publikationens identifierare
- DOI: https://doi.org/10.1016/j.econmod.2014.04.023
Permanent länk till denna sida (URI)
https://res.slu.se/id/publ/61045