Finance Papers

Document Type

Journal Article

Date of this Version

5-1997

Publication Source

Journal of Economic Dynamics and Control

Volume

21

Issue

4-5

Start Page

831

Last Page

852

DOI

10.1016/S0165-1889(97)00005-5

Abstract

This paper derives closed-form solutions for the investment and value of a competitive firm with a constant-returns-to-scale production function and convex costs of adjustment. Solutions are derived for the case of irreversible investment as well as for reversible investment. Optimal investment is a non-decreasing function of q, the shadow value of capital. Relative to the case of reversible investment, the introduction of irreversibility does not affect q, but it reduces the fundamental value of the firm.

Copyright/Permission Statement

© 1997. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/

Keywords

investment, irreversibility

Embargo Date

6-9-2000

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Date Posted: 27 November 2017

This document has been peer reviewed.