Abstract
The effect that investment lags have on the uncertainty-investment relationship is studied by modifying the Bar-Ilan and Strange (1996) model to enable an analytical solution. The following results emerge: (i) If the time lag is sufficiently small, uncertainty affects investment negatively; (ii) A sufficiently large time lag gives rise to an inverse U-shape uncertainty-investment relationship; (iii) When such an inverse U-shape exists, the longer the time lag (or the larger the degree of profit convexity), the wider the range of a positive uncertainty-investment relationship.
Original language | English |
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Article number | 11 |
Journal | B.E. Journal of Theoretical Economics |
Volume | 8 |
Issue number | 1 |
DOIs | |
State | Published - 2008 |
Externally published | Yes |
Keywords
- Investment
- Time to build
- Uncertainty