A simple model is lIsed to explore the etTects of "inereasing demand risk" on busine~s fixed investment. We show that within a putty-c1ay framework an increase in demand uncertAinty can be expected to have two countervailing effects. On the one hand increasing risk tends to induce a firm to increase its capacity. but on the other hand the optimal capital-intensity of that capacity decreases.
Scandinavian Journal of Economics
A Putty–Clay Model of Demand Uncertainty and Investment
Journal Article
Reference
Albrecht, James W. and Albert G. Hart (1983). “A Putty–Clay Model of Demand Uncertainty and Investment”. Scandinavian Journal of Economics 85(3), 393–402. doi.org/10.2307/3439599
Albrecht, James W. and Albert G. Hart (1983). “A Putty–Clay Model of Demand Uncertainty and Investment”. Scandinavian Journal of Economics 85(3), 393–402. doi.org/10.2307/3439599
Authors
James W. Albrecht, Albert G. Hart