'The Principle of Increasing Risk': Kalecki's investment theory revisited.

This paper reformulates Kalecki's investment models based on 'the principle of increasing risk'. First, it is shown that in his model risk can be interpreted as a conditional probability of bankruptcy of a firm, or the 'hazard rate' in reliability theory. Secondly, a simple static Kaleckian investment model is developed based on this interpretation. In the model, a slightly modified Kaleckian optimality condition for investment holds. It is also shown that, as Kalecki correctly pointed out, the principle of falling marginal efficiency of capital (or investment) is not required to obtain a finite level of investment. Finally, I consider sequential investment in an intertemporal model. In this model, a modified version of the Kaleckian optimality condition determines investment. In addition, as Kalecki emphasized, his increasing risk limits the level of investment even without increasing and convex adjustment costs associated with investment, by which the finite rate of investment is derived in the macroeconomics literature. [ABSTRACT FROM AUTHOR]