Risk-aversion and the uncertainty-investment relationship: the role of capital depreciation

Risultato della ricerca: Contributo in rivistaArticolo in rivistapeer review

Abstract

Some recent contributions (Nakamura (1999), Saltari and Ticchi (2005)) assess the effects of an increase in price uncertainty on investment. These papers suggest that investments react negatively to uncertainty when the risk aversion index characterizing firm's preferences is lower than one but higher than the labour income share of output. We show that the this result crucially depends on the assumption of complete capital depreciation after production. When realistic values for the capital depreciation parameter are taken into account, the investment-uncertainty relation is negative for values of the risk-aversion index larger than unity.
Lingua originaleEnglish
pagine (da-a)585-591
Numero di pagine7
RivistaJOURNAL OF ECONOMIC BEHAVIOR & ORGANIZATION
Stato di pubblicazionePubblicato - 2008

Keywords

  • capital depreciation
  • investment
  • uncertainty

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