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Investment and uncertainty with recursive preferences

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  • Davide TICCHI

    ([n.a.])

Abstract

This paper analyses the relationship between uncertainty and investment when firms are risk averse and have a costant return to scale technology. Using recursive preferences, the paper demonstrates that not only the degree of risk aversion is important in determining the sign of the investment uncertainty relationship but that the intertemporal substitution elasticity also plays a crucial role. The model presented suggests the existence of a positive relationship between investment and uncertainty for reasonable values of the parameters. In the second part of the paper we extend the analysis taking into consideration the presence of adjustment costs in the investment process. Except for particular values of the preference parameters, the uncertainty-investment relationship has a not a definite sign anymore.

Suggested Citation

  • Davide TICCHI, 2000. "Investment and uncertainty with recursive preferences," Working Papers 127, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    • Handle: RePEc:anc:wpaper:127
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    Cited by:

    1. Stefania BUSSOLETTI & Roberto ESPOSTI, 2004. "Regional Convergence, Structural Funds and the Role of Agricolture in the EU. A Panel-Data Approach," Working Papers 220, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    2. Ugo FRATESI, 2003. "Innovation Diffusion and the Evolution of Regional Disparities," Working Papers 186, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    3. Marcello MESSORI & Alberto ZAZZARO, 2004. "Monetary profits within the circuit: Ponzi finance oer "mors tua, vita mea"?," Working Papers 200, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    4. Nicola MATTEUCCI & Alessandro STERLACCHINI, 2003. "ICT and Employment Growth in Italian Industries," Working Papers 193, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
    5. Elvio MATTIOLI, 2003. "The measurement of coherence in the evaluation of criteria and its effects or ranking problems illustrated using a multicriteria decision method," Working Papers 199, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.

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