Working Paper Series
James W. Albrecht and Albert G. Hart
A Putty-Clay Model of Demand Uncertainty and Investment
Abstract: This paper uses a simple model to explore the effects of
"increasing demand risk" on business fixed investment. We show that within
a putty-clay framework an increase in demand uncertainty can be expected to
have two countervailing effects. On the one hand increasing risk tends to
induce a firm to increase its capacity, but on the other hand the optimal
capital intensity of that capacity decreases.
Keywords: Firm investment; Firm strategy; Production; (follow links to similar papers)
JEL-Codes: D92; L11; (follow links to similar papers)
15 pages, December 1979, Revised April 1982
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