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Investment and uncertainty with recursive preferences

Ticchi, Davide Investment and uncertainty with recursive preferences. Technical Report #127/2000 (Unpublished)

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This paper analyses the relationship between uncertainty and investment when firms are risk averse and have a costant return to scale technology. Using recursive preferences, the paper demonstrates that not only the degree of risk aversion is important in determining the sign of the investment uncertainty relationship but that the intertemporal substitution elasticity also plays a crucial role. The model presented suggests the existence of a positive relationship between investment and uncertainty for reasonable values of the parameters. In the second part of the paper we extend the analysis taking into consideration the presence of adjustment costs in the investment process. Except for particular values of the preference parameters, the uncertainty-investment relationship has a not a definite sign anymore.

Item Type: Working Paper (Technical Report)
Identification Number: 127
Subjects: H Social Sciences > HB Economic Theory
Research Area: Economics and Institutional Change
Depositing User: Ms T. Iannizzi
Date Deposited: 30 Jun 2014 13:07
Last Modified: 30 Jun 2014 13:07
URI: http://eprints.imtlucca.it/id/eprint/2222

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