Investment and finance: A theoretical approach

In this paper, we reconsider the theory of investment and finance with imperfect capital market from an analytical point of view. First, we present a simplified static model which integrates Keynes' approach to investment determination and Kalecki's approach to the ‘principle of increasing risk’, and investigate the relationships between this model and Tobin's q theory. The second part of this paper tries to extend the basic model to the model of investment and finance in a truly dynamic environment by utilizing the analytical framework which was presented by Asada and Semmler.