IDEAS home Printed from https://ideas.repec.org/p/sce/scecf1/163.html
   My bibliography  Save this paper

Estimation of a dynamic structural model of irreversible investment

Author

Listed:
  • Rocio Sanchez

Abstract

In this paper we propose and estimate a dynamic structural model of fixed capital investment using firm-level Spanish data. We first characterize the optimal behavior of a firm facing uncertainty in demand and input prices, as well as kinked and lump-sum adjustment costs. This nonconvex adjustment cost structure is suggested by the observed evidence of inaction and lumpiness in microeconomic investment data. The optimal decision rule we derive is then used to specify a microeconometric discrete choice model. Our estimation method consists on a nested algorithm. The outer algorithm maximizes the likelihood function in each iteration in the search of the structural parameters. The inner algorithm computes the difference in conditional value functions from the nonparametric estimation of conditional choice probabilities. Thus, our method fits into the literature on structural estimation that avoids the solution of the dynamic programming problem. This estimation exercise is implemented on a dataset consisting on an unbalanced panel of 3060 Spanish manufacturing firms for the period 1990-1997.

Suggested Citation

  • Rocio Sanchez, 2001. "Estimation of a dynamic structural model of irreversible investment," Computing in Economics and Finance 2001 163, Society for Computational Economics.
    • Handle: RePEc:sce:scecf1:163
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item

    Keywords

    Structural estimation; applied microeconometrics; investment models; nonconvex adjustment costs;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sce:scecf1:163. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christopher F. Baum (email available below). General contact details of provider: https://edirc.repec.org/data/sceeeea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.