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Home Publications Optimal investment policy with fixed adjustment costs and complete irreversibility

Optimal investment policy with fixed adjustment costs and complete irreversibility

Journal article | Economics Letters

We develop and characterize analytically an investment model in discrete time with a fixed adjustment cost not proportional to existing capital and complete irreversibility that reproduces the lumpiness of investment at the micro-level. In agreement with the empirical evidence, as a firm size increases, investment becomes less lumpy. The optimal policy is of the generalized (S,s) form.

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