Investment, Capacity, and Uncertainty: A Putty-Clay Approach
NBER Working Paper No. 10446
We embed the microeconomic decisions associated with investment under uncertainty, capacity utilization, and machine replacement in a general equilibrium model based on putty-clay technology. In the presence of irreversible factor proportions, a mean-preserving spread in the productivity of investment raises aggregate investment, productivity, and output. Increases in uncertainty have important dynamic implications, causing sustained increases in investment and hours and a medium-term expansion in the growth rate of labor productivity.
Published: Gilchrist, Simon and John C. Williams. "Investment, Capacity, And Uncertainty: A Putty-Clay Approach," Review of Economic Dynamics, 2005, v8(1,Jan), 1-27.