Understanding investment irreversibility in general equilibrium

In general equilibrium, irreversibility affects both the wealth of consumer s and the return on assets. As long as the inter-temporal elasticity of sub stitution is realistically low, irreversibility not only prevents capital d estruction, but it also induces capital creation. Furthermore, under certai n conditions, irreversibility raises the risk premium by increasing the var iability of consumption and market portfolio. These issues are dealt in a s imple model of investment irreversibility with multiple types of capital. I ts tractability allows for analytical results which explain the contrast be tween the consequences of irreversibility for individual markets and the co nsequences of irreversibility for the whole economy.