Optimal investment policy with fixed adjustment costs and complete irreversibility

We develop and characterize analytically an investment model in discrete time with a fixed adjustment cost not proportional to existing capital and complete irreversibility that reproduces the lumpiness of investment at the micro-level. In agreement with the empirical evidence, as a firm size increases, investment becomes less lumpy. The optimal policy is of the generalized (S,s) form.

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Year of publication:	2014
Authors:	Roys, Nicolas
Published in:	Economics Letters. - Elsevier, ISSN 0165-1765. - Vol. 124.2014, 3, p. 416-419
Publisher:	Elsevier
Subject:	Investment \| Adjustment costs \| Irreversibility \| Dynamic programming

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Type of publication:	Article
Classification:	C61 - Optimization Techniques; Programming Models; Dynamic Analysis ; D21 - Firm Behavior ; E2 - Consumption, Saving, Production, Employment, and Investment
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010930713