The dynamic effects of real options and irreversibility on investment and labour demand
Nicholas Bloom
No W00/15, IFS Working Papers from Institute for Fiscal Studies
Abstract:
This paper shows that, contrary to common beliefs, the real options effect of uncertainty plays no role in the long run rate of investment. This is proven for both the standard investment model with Cobb-Douglas production and Brownian motion demand, and also for a broader class of models with multiple lines of capital, labor and general demand stochastics. Real options and irreversibility, however, are shown to play an important role in the short run dynamics of investment and labor demand. Specifically, they reduce the short run response of investment and hiring to current demand shocks, and lead to a lagged response to past demand shocks.
JEL-codes: D8 D92 E22 (search for similar items in EconPapers)
Pages: 34 pp
Date: 2000-07-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)
Downloads: (external link)
http://www.ifs.org.uk/wps/wp0015.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.ifs.org.uk/wps/wp0015.pdf [301 Moved Permanently]--> https://www.ifs.org.uk/wps/wp0015.pdf [302 Found]--> https://ifs.org.uk/wps/wp0015.pdf)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:ifs:ifsewp:00/15
Ordering information: This working paper can be ordered from
The Institute for Fiscal Studies 7 Ridgmount Street LONDON WC1E 7AE
Access Statistics for this paper
More papers in IFS Working Papers from Institute for Fiscal Studies The Institute for Fiscal Studies 7 Ridgmount Street LONDON WC1E 7AE. Contact information at EDIRC.
Bibliographic data for series maintained by Emma Hyman ().