Irreversible Investment Under Uncertainty in General Equilibrium
This paper considers the decision of irreversible investment under macroeconomic uncertainty in a general equilibrium framework. Uncertainty thus affects the optimal decision through two different transmission channels. The first one is the irreversibility and the second one is the agents’ preferences. The partial equilibrium counterpart of our model would have exhibited the standard negative relationship between uncertainty and the desired level of capital. We show that extending the analysis to a general equilibrium framework may reverse this relationship.
KeywordsPetroleum Income Dition Volatility Aude
Unable to display preview. Download preview PDF.
- Bertola G. (1994). Flexibility, investment, and growth. Journal of Monetary Economics, 98(5):103–125.Google Scholar
- Brennan M.J. and Schwartz E.S. (1985). Evaluating natural resource investments. Journal of Business, 57:135–157.Google Scholar
- Coleman W. (1997). The behavior of interests rates in a general equilibrium multi-sector model with irreversible investment. Macroeconomic Dynamics, 1: 206–227.Google Scholar
- Dixit A. and Pindyck R. (1994). Investment Under Uncertainty. Princeton University Press.Google Scholar
- Epaulard A. and Pommeret A. (1998). Recursive utility, growth, and the welfare cost of volatility. Working paper ERASME.Google Scholar
- Gilchrist S. and Williams J. (1998). Putty-clay and investment: a steady-state analysis. Working Paper, Boston University and NBER.Google Scholar
- Henry C. (1974). Investment decisions under uncertainty: the irreversibility effect. American Economic Review, 64: 1012–1106.Google Scholar
- Pommeret A. (2000). Décisions irréversibles en incertitude et préférences des agents, le cas de l’incertitude sur le prix de l’énergie. Ph.D Thesis, Université Paris I Panthéon-Sorbonne.Google Scholar