ABSTRACT
Business investment is a key determinant of economic growth. There are four conventional investment theories under certainty: the Marginal Efficiency of Capital, the Accelerator theory, the Neoclassical theory, and the Tobin's marginal q theory. The Neoclassical theory is based on the theory of optimal capital accumulation, which is determined by the maximization of the present value of net cash flows. This theory is also called the Neoclassical Theory of Optimal Capital Accumulation. The Neoclassical theory is explained in two stages. At the first stage, the optimal level of capital stock is determined at the equilibrium where the marginal revenue product of capital is equal to the user cost of capital. The literature on investment under uncertainty consists mostly of theoretical studies. These studies derive different conclusions about the sign of the investment-uncertainty relationship. Craine tries to solve the conflict between the economic and finance literature, regarding the sign of the investment-uncertainty relationship.
