Optimal investment policy with fixed adjustment costs and complete irreversibility

•We model investment decisions with a fixed adjustment cost not proportional to existing capital.•The optimal policy is of the generalized (S,s) form.•In agreement with the empirical evidence, as the firm size increases, investment becomes less lumpy.

We develop and characterize analytically an investment model in discrete time with a fixed adjustment cost not proportional to existing capital and complete irreversibility that reproduces the lumpiness of investment at the micro-level. In agreement with the empirical evidence, as a firm size increases, investment becomes less lumpy. The optimal policy is of the generalized (S,s) form.