The Effects On Irreversible Investment With Rate-of-return Regulation

• Main Authors: HUANG, CHIUNG-CHEN, 黃瓊瑱
• Other Authors: JYH-BANG JOU
• Format: Others
• Language: zh-TW
• Published: 1997
• Online Access: http://ndltd.ncl.edu.tw/handle/26373629817562729664

碩士 === 國立臺灣大學 === 三民主義研究所 === 85 === A dynamic model of irreversible investment in a monopoly industry under demand uncertainty is developed. In the absence of rate-of-return restrictions, invest -ment by itself will keep the rate of return from rising above a natural ceiling by an option value factor. When a lower ceiling is imposed, investment is triggered only by the observation of an even higher "shadow" rate of return. As the imposed ceiling is reduced, there are two effects: one is the "A-J effect", which will stimulate investment; and the other is the "downside risk effect" which will depress investment. When the imposed ceiling is reduced from a natural ceiling, the "A-J effect" will be the main factor which makes the firm invest more. As the imposed ceiling keep on reducing, the "downside risk effect" will become the main factor. It makes the shadow rate of return go to infinity and investment cease completely. The influnces on long-run average rate of return is ambiguous. On the other side, the imposed ceiling will affect the long-run average capital stocks as follows: first, as the imposed ceiling reduces, the long-run average capital stocks will increase. Second, a tighter rate of return ceiling will generally lead to decrease the long-run average capital stock.