PRODUCTION AND INVESTMENT DECISIONS UNDER SUNK COST AND TEMPORAL UNCERTAINTY

Authors
CHAVAS JP
Citation
Jp. Chavas, PRODUCTION AND INVESTMENT DECISIONS UNDER SUNK COST AND TEMPORAL UNCERTAINTY, American journal of agricultural economics, 76(1), 1994, pp. 114-127
Citations number
27
Categorie Soggetti
Economics,"AgricultureEconomics & Policy
Journal title
American journal of agricultural economics → ACNP
ISSN journal
00029092
Volume
76
Issue
1
Year of publication
1994
Pages
114 - 127
Database
ISI
SICI code
0002-9092(1994)76:1<114:PAIDUS>2.0.ZU;2-P
Abstract
Building on Glenn Johnson's asset fixity theory, this article introduc es sunk cost and temporal uncertainty in Jorgenson's neoclassical theo ry of investment. Under the assumption of risk neutrality, we show how sunk cost and temporal risk affect the implicit rental value of capit al and investment and entry-exit decisions. Results suggest there are important interactions between sunk cost and the effects of temporal u ncertainty on production behavior.