Optimal Investment with Costly Reversibility

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dc.contributor.authorAbel, Andrew B
dc.contributor.authorEberly, Janice C
dc.date2023-05-17T17:35:07.000
dc.date.accessioned2023-05-22T19:14:55Z
dc.date.available1998-10-01T00:00:00Z
dc.date.issued1996-10-01
dc.date.submitted2017-07-21T10:08:40-07:00
dc.description.abstractInvestment is characterized by costly reversibility when a firm can purchase capital at a given price and sell capital at a lower price. We solve for the optimal investment of a firm that faces costly reversibility under uncertainty and we extend the Jorgensonian concept of the user cost of capital to this case. We define and calculate cU and cL as the user costs of capital associated with the purchase and sale of capital, respectively. Optimality requires the firm to purchase and sell capital as needed to keep the marginal revenue product of capital in the closed interval [cL, cU). This prescription encompasses the case of irreversible investment as well as the standard neoclassical case of costlessly reversible investment.
dc.identifier.urihttps://repository.upenn.edu/handle/20.500.14332/34241
dc.legacy.articleid1280
dc.legacy.fields10.2307/2297794
dc.legacy.fulltexturlhttps://repository.upenn.edu/cgi/viewcontent.cgi?article=1280&context=fnce_papers&unstamped=1
dc.rightsThis is a pre-copyedited, author-produced PDF of an article accepted for publication in The Review of Economic Studies following peer review. The version of record Andrew B. Abel, Janice C. Eberly; Optimal Investment with Costly Reversibility. Rev Econ Stud1996; 63 (4): 581-593. doi: 10.2307/2297794 is available online at: https://doi.org/10.2307/2297794
dc.source.beginpage581
dc.source.endpage593
dc.source.issue158
dc.source.issue4
dc.source.journalFinance Papers
dc.source.journaltitleThe Review of Economic Studies
dc.source.peerreviewedtrue
dc.source.statuspublished
dc.source.volume63
dc.subject.otherEconomics
dc.subject.otherFinance
dc.subject.otherFinance and Financial Management
dc.titleOptimal Investment with Costly Reversibility
dc.typeArticle
digcom.contributor.authorAbel, Andrew B
digcom.contributor.authorEberly, Janice C
digcom.date.embargo1998-10-01T00:00:00-07:00
digcom.identifierfnce_papers/158
digcom.identifier.contextkey10461340
digcom.identifier.submissionpathfnce_papers/158
digcom.typearticle
dspace.entity.typePublication
upenn.schoolDepartmentCenterFinance Papers
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