Investment demand when economic depreciation is stochastic

Panos Fousekis, James S. Shortle

Research output: Contribution to journalArticle

6 Scopus citations

Abstract

The neoclassical model of investment by a risk-neutral firm is generalized to include uncertainty about the rate of depreciation by replacing the deterministic capital accumulation identity with a stochastic variant. Ito’s stochastic dynamic optimization is used to derive conditions for optimal investment. A nondegenerate steady-state distribution of the capital stock is shown to exist and is derived for the empirically important case of a normalized quadratic profit function and static price expectations. It is demonstrated for this case that uncertainty about the rate of depreciation decreases the expected steady-state capital stock and investment.

Original languageEnglish (US)
Pages (from-to)990-1000
Number of pages11
JournalAmerican Journal of Agricultural Economics
Volume77
Issue number4
DOIs
StatePublished - Nov 1995

All Science Journal Classification (ASJC) codes

  • Agricultural and Biological Sciences (miscellaneous)
  • Economics and Econometrics

Fingerprint Dive into the research topics of 'Investment demand when economic depreciation is stochastic'. Together they form a unique fingerprint.

  • Cite this