Essays on investment in general equilibrium models

In this thesis, we study three different aspects about the role of investment in economics. In chapter 2, we are concerned with the role of technology in the making of (capital) investment decision under uncertainty and incomplete markets. We consider a stock market economy with an incomplete asset market in which the technology employs labor in addition to capital. We show that the addition of labor restores unanimity and profit maximization as a proper investment criterion when the technology shows constant return to scale. We also show that this result extends to technologies with multiple investment/output types and over longer horizons. In the next chapter, we investigate the general welfare properties of a two-period version of the stochastic growth model with incomplete markets. We show that welfare improvements are possible for a generic set of economies provided an outside agent has sufficient redistributive power. Using a weaker notion of suboptimality, we argue that the economy consisting of ex-ante identical individuals with uninsurable idiosyncratic risk always over-invest (locally) and that under-investment never happens in the heterogeneous agents-incomplete market models. Also, as a by-product of the two first chapters, we argue that both unanimity of shareholders and suboptimality can occur in equilibrium. Finally, in the last chapter, we study the role of inequality on human capital investment. We construct a tractable general equilibrium model where individuals have different endowments of factors that complement the schooling process. Using numerical solutions we study how the endogenous variables of the model respond to two different interventions in the distribution of opportunities: a mean-preserving spread and a change in the support. The results suggest that a higher degree of inequality of opportunities is associated with lower average level of human capital, a lower fraction of individuals investing in human capital, higher inequality in the distribution of human capital, and higher wage inequality.