Abstract
This paper presents a new and general approach to the theory of irreversible investment. We show that the optimal policy is a base capacity policy and derive general monotone comparative statics results. When the operating profit function is supermodular, the base capacity increases monotonically with the exogenous shock; and firm size is decreasing in the user cost of capital. Last but not least, the paper provides a general existence theorem for optimal policies.
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Riedel, F., Su, X. On irreversible investment. Finance Stoch 15, 607–633 (2011). https://doi.org/10.1007/s00780-010-0131-y
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DOI: https://doi.org/10.1007/s00780-010-0131-y