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Non-convexities in the adjustment of different capital inputs: A firm-level investigation

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  • Del Boca, Alessandra
  • Galeotti, Marzio
  • Rota, Paola

Abstract

Recent developments in investment research have highlighted the importance of non-convexities and irreversibilities in firms' adjustment of quasi-fixed inputs. Aggregation across capital goods may smooth out the discontinuities associated with the adjustment of individual assets. Lack of suitable data is one of the reasons why empirical work has typically relied on the assumption of capital homogeneity. In this paper we exploit a data set of 1539 Italian firms which allows us to disaggregate capital into equipment and structures, and purchases and sales of assets. We construct measures of fundamental Q to capture investment opportunities associated with each asset. We uncover the pattern of dynamic adjustment by using non-parametric techniques to relate each individual investment to its own fundamental Q.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 52 (2008)
Issue (Month): 2 (February)
Pages: 315-337

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Handle: RePEc:eee:eecrev:v:52:y:2008:i:2:p:315-337

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Cited by:
  1. Marco Grazzi & Nadia Jacoby & Tania Treibich, 2013. "Dynamics of Investment and Firm Performance: Comparative Evidence from Manufacturing Industries," GREDEG Working Papers 2013-09, Groupe de REcherche en Droit, Économie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
  2. Verona, Fabio, 2013. "Investment dynamics with information costs," Research Discussion Papers 18/2013, Bank of Finland.
  3. Konstantinos Drakos, 2006. "A note on uncertainty and investment across the spectrum of irreversibility," Applied Economics Letters, Taylor & Francis Journals, vol. 13(13), pages 873-876.

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