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Costly Reversible Investment with Fixed Costs: An Empirical Study

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  • Asano, Hirokatsu

Abstract

The analysis presented here applies a generalized version of the friction model to costly reversible investment with fixed costs of investment. The analysis investigates three U.S. industries: the computer and office equipment industry, the automobile industry, and the airline industry. Five different investment models are compared. Because some models are nonnested, the analysis employs Vuong's test of model selection. The analysis shows that the investment model with costly reversibility and fixed costs is the best among the models. In addition, the analysis suggests the existence of convex adjustment costs of investment.

Suggested Citation

  • Asano, Hirokatsu, 2002. "Costly Reversible Investment with Fixed Costs: An Empirical Study," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 227-240, April.
  • Handle: RePEc:bes:jnlbes:v:20:y:2002:i:2:p:227-40
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    Cited by:

    1. Francesca Iorio & Stefano Fachin, 2006. "Maximum Likelihood Estimation of Input Demand Models with Fixed Costs of Adjustment," Statistical Methods & Applications, Springer;Società Italiana di Statistica, vol. 15(1), pages 129-137, May.
    2. ASANO Hirokatsu, 2008. "Econometric Analysis of Irreversible Investment with Financial Constraints: Comparison of Parametric and Semiparametric Estimations," Discussion papers 08032, Research Institute of Economy, Trade and Industry (RIETI).
    3. Baerenklau, Kenneth A. & Knapp, Keith C., 2005. "A Stochastic-Dynamic Model of Costly Reversible Technology Adoption," 2005 Annual meeting, July 24-27, Providence, RI 19156, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    4. Julian Fennema, 2006. "An Alternative Estimation Framework for Firm-Level Capital Investment," CERT Discussion Papers 0602, Centre for Economic Reform and Transformation, Heriot Watt University.
    5. Posch, Peter N., 2011. "Time to change. Rating changes and policy implications," Journal of Economic Behavior & Organization, Elsevier, vol. 80(3), pages 641-656.

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