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Non-convexities in the Adjustment of Different Capital Inputs: A Firm-level Investigation

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  • Alessandra Del Boca

    (University of Brescia)

  • Marzio Galeotti

    (University of Milan)

  • Paola Rota

    (University of Brescia)

Abstract

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

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2003.35.

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Date of creation: Apr 2003
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Handle: RePEc:fem:femwpa:2003.35

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Keywords: Investment; heterogenous capital; non-convexities; fundamental Q; panel data;

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Citations

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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, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
  2. 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.
  3. Verona, Fabio, 2013. "Investment dynamics with information costs," Research Discussion Papers 18/2013, Bank of Finland.

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