TY - JOUR
T1 - Optimal investment under ambiguous technology shocks
AU - Asano, Takao
AU - Osaki, Yusuke
N1 - Funding Information:
We acknowledge the Editor (Emanuele Borgonovo) and an anonymous reviewer, whose comments improved this paper substantially. We are grateful to Shin Kanaya, Kazuko Kano, Hajime Katayama, Hideyuki Mizobuchi, Michio Suzuki, Akihisa Shibata, Kit Pong Wong, and participants at the second Kwansei Gakuin University and KIER joint workshop for their comments and discussions. This research is financially supported by the JSPS KAKENHI Grant Numbers 20K01745, 17K03806, 20H01507, and 26705004, and the Joint Research Program of KIER.
Funding Information:
We acknowledge the Editor (Emanuele Borgonovo) and an anonymous reviewer, whose comments improved this paper substantially. We are grateful to Shin Kanaya, Kazuko Kano, Hajime Katayama, Hideyuki Mizobuchi, Michio Suzuki, Akihisa Shibata, Kit Pong Wong, and participants at the second Kwansei Gakuin University and KIER joint workshop for their comments and discussions. This research is financially supported by the JSPS KAKENHI Grant Numbers 20K01745 , 17K03806 , 20H01507 , and 26705004 , and the Joint Research Program of KIER.
Publisher Copyright:
© 2020 Elsevier B.V.
Copyright:
Copyright 2021 Elsevier B.V., All rights reserved.
PY - 2021/8/16
Y1 - 2021/8/16
N2 - This paper analyzes the behavior of a firm facing an ambiguous technology shock and the effects of the attitude toward ambiguity on optimal capital investment using the smooth ambiguity model of Klibanoff et al. (2005). Although it seems intuitive that an increase in ambiguity aversion always reduces the optimal capital investment, this is not necessarily true because the shape of the production function plays a key role in determining the effect. Under some conditions, we show that the optimal amount of capital investment increases (decreases) in ambiguity aversion if the production function is substitute (complement), and that this result is counterintuitive when the production function is substitute. Furthermore, our main results hold if we assume the α-maxmin preferences in Ghirardato et al. (2004).
AB - This paper analyzes the behavior of a firm facing an ambiguous technology shock and the effects of the attitude toward ambiguity on optimal capital investment using the smooth ambiguity model of Klibanoff et al. (2005). Although it seems intuitive that an increase in ambiguity aversion always reduces the optimal capital investment, this is not necessarily true because the shape of the production function plays a key role in determining the effect. Under some conditions, we show that the optimal amount of capital investment increases (decreases) in ambiguity aversion if the production function is substitute (complement), and that this result is counterintuitive when the production function is substitute. Furthermore, our main results hold if we assume the α-maxmin preferences in Ghirardato et al. (2004).
KW - Capital investment
KW - Decision analysis
KW - Investment analysis
KW - Smooth ambiguity model
KW - Technology shock
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U2 - 10.1016/j.ejor.2020.11.047
DO - 10.1016/j.ejor.2020.11.047
M3 - Article
AN - SCOPUS:85099506459
SN - 0377-2217
VL - 293
SP - 304
EP - 311
JO - European Journal of Operational Research
JF - European Journal of Operational Research
IS - 1
ER -