Increasing optimism and demand uncertainty

By allowing the initial prior over market size to be a mixture of distributions, this paper extends the model of irreversible investment under uncertainty proposed by Rob (1991). We find that capacity expansion fuels investors' optimism. It is shown in the paper that the crash is always preceded by a boom when the initial prior is a mixture of exponential distributions.

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Year of publication:	2005
Authors:	Prat, Julien
Published in:	Economics Bulletin. - AccessEcon, ISSN 1545-2921. - Vol. 12.2005, 10, p. 1-8
Publisher:	AccessEcon
Subject:	Learning Investment Uncertainty

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Extent:	application/pdf
Type of publication:	Article
Language:	English
Classification:	L1 - Market Structure, Firm Strategy, and Market Performance ; D8 - Information and Uncertainty
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005094560