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| Author: | Eberly, J. C. Mieghem, J. A. van |
| Title: | Multi-factor dynamic investment under uncertainty |
| Journal: | Journal of Economic Theory
1997 : AUG, VOL. 75:2, p. 345-387 |
| Index terms: | INVESTMENTS UNCERTAINTY DECISION MAKING STRATEGY |
| Language: | eng |
| Abstract: | This article studies optimal choice of many factors with costly reversibility. Costly reversibility of factors arises when a company faces labor firing costs or when it cannot recoup the price capital when it is resold. Because not all of the expected present value of future payents is recovered when factor useis reduced, the firm will be more reluctant to change factor levels. This is described by a region of inaction that characterizes optimal investment in the general investment model. Within this region it is optimal not to adjust factor use, but from anywhere outside the region or at its boundaries, it is optimal to adjust factors to specific point on the boundary of the range. This article presents various properties of the general optimal strategy. |
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