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Alternative Investment Models for Firms in the Electric Utilities Industry

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  • Stephen C. Peck
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    Abstract

    In this paper an analysis is made of the investments in turbogenerator sets made by a sample of 15 firms in the electric utilities industry for the period 1948 through 1969. Two models of firm investment are proposed and tested. The first is directly related to an earlier work of Chenery, in which he pointed out that the existence of economies of scale would lead to lumpy investments. This model is consistent with the individual firm data. The second model is the familiar distributed lag model which predicts that investment will take place smoothly. This model is inconsistent with the individual firm data. In addition, predictions of the aggregate investment of the 15 firms are made with the lumpy model and these fit about as well as a distributed lag model estimated with the aggregate data. Bayesian methods of estimation and inference are used throughout to arrive at these conclusions.

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    Bibliographic Info

    Article provided by The RAND Corporation in its journal Bell Journal of Economics.

    Volume (Year): 5 (1974)
    Issue (Month): 2 (Autumn)
    Pages: 420-458

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    Handle: RePEc:rje:bellje:v:5:y:1974:i:autumn:p:420-458

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    1. repec:cam:camdae:1324 is not listed on IDEAS
    2. John Bailey Jones & Duc T. Le, 2002. "Optimal Investment with Lumpy Costs," Discussion Papers 02-02, University at Albany, SUNY, Department of Economics.
    3. Kohei Enami & John Mullahy, 2008. "Tobit at Fifty: A Brief History of Tobin's Remarkable Estimator, of Related Empirical Methods, and of Limited Dependent Variable Econometrics in Health Economics," NBER Working Papers 14512, National Bureau of Economic Research, Inc.
    4. Palm, Franz C. & Pfann, Gerard A., 1998. "Sources of asymmetry in production factor dynamics," Journal of Econometrics, Elsevier, vol. 82(2), pages 361-392, February.

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