Interdependence of the Level of Investment and the Riskiness of Investment

Abstract

This paper considers the interdependence between the level of investment and the riskiness of investment. It provides a unified approach to the study of genuinely risky and risk~reducing investment. It shows that there is a simple means of characterizing a given investment project as either genuinely risky or risk·reducing. The results of this paper can be applied to broaden the study of self-insurance and portfolio choice. (081)