In economic situations where action entails a fixed cost, inaction is the norm. Action is taken infrequently, and adjustments are large when they occur. Interest in economic models that exhibit ''lumpy'' behavior of this kind has exploded in recent years, spurred by growing evidence that it is typical in many important economic decisions, including price setting, investment, hiring, durable goods purchases, and portfolio management. InThe Economics of Inaction, leading economist Nancy Stokey shows how the tools of stochastic control can be applied to dynamic problems of decision making under uncertainty when fixed costs are present. Stokey provides a self-contained, rigorous, and clear treatment of two types of models, impulse and instantaneous control. She presents the relevant results about Brownian motion and other diffusion processes, develops methods for analyzing each type of problem, and discusses applications to price setting, investment, and durable goods purchases. This authoritative book will be essential reading for graduate students and researchers in macroeconomics.

PREFACEP. IXINTRODUCTIONP. 1NOTESP. 12MATHEMATICAL PRELIMINARIESP. 15STOCHASTIC PROCESSES, BROWNIAN MOTIONS, AND DIFFUSIONSP. 17RANDOM VARIABLES AND STOCHASTIC PROCESSESP. 17INDEPENDENCEP. 18WIENER PROCESSES AND BROWNIAN MOTIONSP. 19RANDOM WALK APPROXIMATION OF A BROWNIAN MOTIONP. 20STOPPING TIMESP. 24STRONG MARKOV PROPERTYP. 24DIFFUSIONSP. 25DISCRETE APPROXIMATION OF AN ORNSTEIN-UHLENBECK PROCESSP. 27NOTESP. 28STOCHASTIC INTEGRALS AND ITO'S LEMMAP. 30THE HAMILTON-JACOBI-BELLMAN EQUATIONP. 31STOCHASTIC INTEGRALSP. 34ITO'S LEMMAP. 37GEOMETRIC BROWNIAN MOTIONP. 38OCCUPANCY MEASURE AND LOCAL TIMEP. 41TANAKA'S FORMULAP. 43THE KOLMOGOROV BACKWARD EQUATIONP. 47THE KOLMOGOROV FORWARD EQUATIONP. 50NOTESP. 51MARTINGALESP. 53DEFINITION AND EXAMPLESP. 53MARTINGALES BASED ON EIGENVALUESP. 57THE WALD MARTINGALEP. 58SUB- AND SUPERMARTINGALESP. 60OPTIONAL STOPPING THEOREMP. 63OPTIONAL STOPPING THEOREM, EXTENDEDP. 67MARTINGALE CONVERGENCE THEOREMP. 70NOTESP. 74USEFUL FORMULAS FOR BROWNIAN MOTIONSP. 75STOPPING TIMES DEFINED BY THRESHOLDSP. 78EXPECTED VALUES FOR WALD MARTINGA...(하략)