We develop and characterize analytically an investment model in discrete time with a fixed adjustment cost not proportional to existing capital and complete irreversibility that reproduces the lumpiness of investment at the micro-level. In agreement with the empirical evidence, as a firm size increases, investment becomes less lumpy. The optimal policy is of the generalized (S,s) form.
Authors
Nicolas Roys
Nicolas is a Phd Student at Paris School of Economics and a Phd Scholar at the Centre for Microdata Methods and Practice. His research interests include structural econometrics, applied macroeconomics and computational economics.
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