The I-r hump: irreversible investment under uncertainty

It is well known that if investment is irreversible and uncertain, there ex ists a benefit to waiting. When such benefits are taken into account, the r elationship between interest rates and investment may be quite complex In p articular, when net revenues follow a Gaussian random walk, model investmen t tends to zero at both high and low interest rates. That is, investment is a hump-shaped function of r.