Investment Under Uncertainty with Stochastically Switching Profit Streams: Entry and Exit over the Business Cycle.

John Driffill 1 , 1 , Marzia Raybaudi 2 , 2  and Martin Sola 3 , 3
  • 1 University of London
  • 2 University of Birmingham
  • 3 University of London and Universidad Torcuato Di Tella, msola@econ.bbk.ac.uk

We study how entry and exit decisions of a monopolist are affected by business cycle conditions. We model the business cycle as a two-state Markov process, and assume that the demand curve faced by the monopolist evolves differently in the two states of the economy. We explore conditions under which the monopolist would enter or exit, either in a boom or a recession.

    • GAUSS code for the Driffill et al. paper
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SNDE recognizes that advances in statistics and dynamical systems theory can increase our understanding of economic and financial markets. The journal seeks both theoretical and applied papers that characterize and motivate nonlinear phenomena. Researchers are required to assist replication of empirical results by providing copies of data and programs online. Algorithms and rapid communications are also published.

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