Econometrica: Sep 1971, Volume 39, Issue 5
Investment Under Uncertainty
https://doi.org/0012-9682(197109)39:5<659:IUU>2.0.CO;2-0
p.
659-681
Edward C. Prescott, Robert E. Lucas, Jr
This 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.Log In To View Full Content