Irreversible Investments Revisited

21 Pages Posted: 7 Mar 2007

See all articles by Leif Kristoffer Sandal

Leif Kristoffer Sandal

Norwegian School of Economics (NHH) - Department of Business and Management Science

Stein Ivar Steinshamn

Norwegian School of Economics (NHH) - Department of Business and Management Science

Date Written: 2006-10-11

Abstract

A non-linear dynamic model in two state variables, two controls and three cost terms is presented for the purpose of finding the optimal combination of exploitation and capital investment in optimal renewable resource management. Non-malleability of capital is, in other words, incorporated in the model through an asymmetric convex cost-function of investment, and investments can be both positive and negative. Exploitation is controlled through the utilisation rate of available capital. A novel feature in this model is that there are fixed costs associated with the available capital whether it is utilised or not. In contrast to most of the previous literature both state variables enter the objective function.

Keywords: Irreversible investments, non-malleable capital, renewable resources

Suggested Citation

Sandal, Leif Kristoffer and Steinshamn, Stein Ivar, Irreversible Investments Revisited (2006-10-11). NHH Dept. of Finance & Management Science Discussion Paper No. 2006/11. Available at SSRN: https://ssrn.com/abstract=968928 or http://dx.doi.org/10.2139/ssrn.968928

Leif Kristoffer Sandal (Contact Author)

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway
+47 55 95 93 41 (Phone)

Stein Ivar Steinshamn

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

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