Investment options and the business cycle
By: Boyan Jovanovic
Contributors: National Bureau of Economic Research
Series: NBER working paper series -- working paper 13307; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 13307.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, MA
Language: eng
Format: [electronic resource] /
Description: "This paper extends Lucas (1978) to a production economy with two capital goods.  It is an RBC model in which each unit of investment requires a new idea, an "option".  When options are scarce, new capital is harder to put in place and the value of old capital rises.  Thus the stock market and Tobin's Q are negative indexes of intangibles.  During a boom, Q rises gradually, as options are used up.  Because investment represents an exercise of options, it has an intertemporal substitution tradeoff that is absent in the adjustment-cost model.  Equilibrium may be efficient even without markets for knowledge; the stock market may suffice"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 8/22/2007.

Includes bibliographical references.

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