Investment demand when economic depreciation is stochastic

Panos Fousekis, James Samuel Shortle

Research output: Contribution to journalArticle

6 Citations (Scopus)

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 - Jan 1 1995

Fingerprint

economic demand
Depreciation
Economics
Uncertainty
uncertainty
profits and margins
Capital stock

All Science Journal Classification (ASJC) codes

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

Cite this

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Investment demand when economic depreciation is stochastic. / Fousekis, Panos; Shortle, James Samuel.

In: American Journal of Agricultural Economics, Vol. 77, No. 4, 01.01.1995, p. 990-1000.

Research output: Contribution to journalArticle

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