Flexibility and Adjustment to Information in Sequential Decision Problems

1 The Importance of Irreversibility and Learning — Familiar Examples Revisited.- 1.1 Neoclassical Investment Models: A Brief Survey.- 1.1.1 The Standard Neoclassical Investment Theory Model.- 1.1.2 The Investment Model with Adjustment Costs.- 1.1.3 The Irreversibility of Investment.- 1.1.4 Delivery Lags.- 1.2 Flexible Manufacturing Systems.- 1.2.1 Some Basic Facts about Manufacturing.- 1.2.2 The Determinants of the Flexibility of Manufacturing Systems.- 1.2.3 Manufacturing as a Multiperiod Choice Problem.- 1.3 Conclusions.- 2 The Role of Irreversibility and Learning in Sequential Decision Problems — Basic Concepts.- 2.1 The Two-Period Model without Uncertainty.- 2.1.1 The Elements of the Model.- 2.1.2 Economic Examples.- 2.1.3 Some Basic Results.- 2.1.4 Intertemporal Opportunity Costs.- 2.2 The Two-Period Model with Uncertainty.- 2.2.1 The Elements of the Model.- 2.2.2 Special Cases.- 2.2.3 Flexibility and the Value of Information.- 2.2.4 An Example: Waiting to Invest.- 2.3 Switching Costs.- 2.3.1 The Extended Model.- 2.3.2 An Example: Money Demand as Demand for Flexibility.- 2.4 Summary and Outlook.- 3 Determinants of the Optimal Choice in Sequential Decision Problems — The Two-Period Case.- 3.1 The Formulation of the Problem.- 3.1.1 Some Explanatory Remarks.- 3.1.2 On the Comparison of Information Structures.- 3.2 The Influence of the Choice Set.- 3.3 The Impact of the Decision Criterion.- 3.3.1 Comparison of Bayesian Values.- 3.3.2 Conditions for the Equality of Different Strategies.- 3.3.3 Comparison of the Flexibility of Initial Choices.- 3.4 The Impact of the Information Structure.- 3.4.1 A Counterexample.- 3.4.2 Relative Gains from Information for Different Positions.- 3.4.3 The JONES/OSTROY-Theorem.- 3.4.4 Examples and Modifications.- 3.4.5 Interpretation: Does Greater Uncertainty Imply Greater Demand for Flexibility?.- 3.5 The Two-Period Model — Final Thoughts.- 4 A T-Period Model of Intertemporal Choice with Irreversibility and Uncertainty.- 4.1 The General T-Period Model of Choice.- 4.1.1 The Structure of the Choice Set.- 4.1.2 Economic Examples.- 4.1.3 Results.- 4.1.4 Intertemporal Opportunity Costs.- 4.1.5 Uncertainty and Learning.- 4.2 Some Generalities on Intertemporal Planning.- 4.2.1 Maximum Lifetime, Time Horizon and Time Preference.- 4.2.2 Rolling Myopic Plans.- 4.3 Modelling Rolling Myopic Plans.- 4.3.1 The Standard T-Period Control Problem.- 4.3.2 Examples.- 4.3.3 Bellman’s Principle.- 4.3.4 (T,S)-Plans.- 4.3.5 A Monotonicity Result.- 4.4 Final Remarks on the T-Period Model.- 5 Consumption and Savings Decisions of Households.- 5.1 Motives for the Demand for Money — Some Familiar Tenets.- 5.2 The Structure of the Model.- 5.3 Money Demand when there are no Transaction Costs.- 5.4 Transaction Costs.- 5.4.1 Holding Money in the Absence of Uncertainty.- 5.4.2 Holding Money to Stay Flexible.- Epilogue.- References.