Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/89602
Authors: 
Di Corato, Luca
Moretto, Michele
Vergalli, Sergio
Year of Publication: 
2013
Series/Report no.: 
Nota di Lavoro, Fondazione Eni Enrico Mattei 65.2013
Abstract: 
In the literature investigating the impact of uncertainty on short-run and long-run investment, most authors have used a log linear profit function. This functional form has been generally considered a reasonable approximation for more general ones and has the advantage of providing closed form solutions for both short-run investment rule and long-run rate of capital accumulation. In this paper, we consider a firm facing a linear demand function with additive shocks and present a technique for the analytical approximation of the long-run average rate of capital accumulation for the case of an inverted U-shape profit function. We then compare the long-run rates of capital accumulation calculated under both assumptions within a plausible range of parameter values. We notice significant differences and conclude that the choice of a log linear functional form has a non-trivial impact on the magnitude of the long run rate of capital accumulation.
Subjects: 
Investment
Demand Uncertainty
Irreversibility
JEL: 
C61
D92
E22
Document Type: 
Working Paper

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