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Financing investment under fundamental uncertainty and instability: A heterodox microeconomic view

Jo, Tae-Hee SUNY Buffalo State College

13. June 2012

Online at http://mpra.ub.uni-muenchen.de/39450/ MPRA Paper No. 39450, posted 14. June 2012 / 15:25

Financing Investment under Fundamental Uncertainty and Instability: A Heterodox Microeconomic View Dr. Tae-Hee Jo

Economics and Finance Department SUNY Buffalo State College taeheejo@gmail.com AHE-FAPE-IIPPE Conference Paris, France. July 5-8, 2012 Last updated Wednesday 13th June, 2012 21:46

Abstract The business enterprise in the real world wrestles with fundamental uncertainty and instability. Key enterprise decisions such as pricing, financing, and investment are thus made strategically rather than optimally. Heterodox economists are, however, divided in the account of business enterprise’s financing behavior; macroeconomists put an emphasis on external financing, whereas microeconomists on internal financing. Moreover, they often stop short of establishing a link between the two. Drawing upon the social provisioning perspective, this essay aims at providing a new light on financing focusing on strategic enterprise decision-making mechanisms.

Keywords: Business enterprise, pricing, financing, investment, uncertainty, instability, social provisioning process, social surplus, effective demand JEL Classification Codes: B50, D21, G30

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Introduction: Uncertainty and the Social Provisioning Process

Uncertainty in the historical time is too obvious to ignore. Economists have long wrestled with uncertainty in constructing a sensible economic theory. Taking uncertainty into account indeed makes a theory indeterminate and complicated. Should a model begin and end up with an equilibrium state, uncertainty is to be converted into something readily calculable (that is, risk in a probabilistic sense), or to be completely abandoned as if uncertainty does not exist. The...