Journal Article

Optimal investment policy with fixed adjustment costs and complete irreversibility


Nicolas Roys

Published Date

30 September 2014


Journal Article

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.