Econometrica: Sep 1971, Volume 39, Issue 5
Investment Under Uncertainty
Edward C. Prescott, Robert E. Lucas, JrThis paper determines the time series behavior of investment, output, and prices in a competitive industry with a stochastic demand. It is shown, first, that the equilibrium development for the industry solves a particular dynamic programming problem (maximization of "consumer surplus"). This problem is then studied to determine the characteristics of the equilibrium paths.
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