on a perceived density of cost or return and, second, once an investment is made,
short-term variations in the observed cost or return (such as short-term variations
in the exchange rate in the case of FDI) cannot affect the existing capacity; however,
if the perceived density is adjusted, the investment will be adjusted. Investments that
satisfy these assumptions will be referred to as quasi-fixed2 Recent models of
investment decisions also specify a certain stochastic process for the future return
in a dynamic setting. For our purpose, however, it suffices to consider a general
probabilistic cost scheme. This will also simplify the presentation significantly via
by-passing the complications associated with the dynamic nature of a particular
stochastic process.
Our purpose is to develop a partial equilibrium model of decision by