We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
The Role of a Variable Input in the Relationship Between Investment and Uncertainty.
- Authors
Jaewoo Lee; Kwanho Shin
- Abstract
This article attempts to determine the relationship between investment and uncertainty. This paper explores the pivotal role of a variable input, labor, in striking a balance between a positive effect, due to the convexity of the profit function, and a negative effect, due to the option value of waiting. This variable input convexifies the profit function so that increased uncertainty increases investment. Since the profit function becomes more convex as the labor share increases, the elasticity of investment with respect to uncertainty increases in the labor share of the technology. This elasticity result sheds new light on the source of the positive relationship.
- Subjects
INVESTMENTS; RATIONAL expectations (Economic theory); LABOR; CONVEX domains; ELASTICITY (Economics); TECHNOLOGY
- Publication
American Economic Review, 2000, Vol 90, Issue 3, p667
- ISSN
0002-8282
- Publication type
Article
- DOI
10.1257/aer.90.3.667