Investment, Private Information and Social Learning: A Case Study of the Semiconductor Industry
AbstractSocial learning models of investment provide an interesting alternative explanation for sudden changes in investment behaviour. Caplin and Leahy (1994) develop a model of social learning in which agents learn about the true state of demand from the investment suspension decisions of other agents. In this paper, I test the main predictions of their model using a unique database of investment projects undertaken by semiconductor plants. I find that firms that are installing a significant new technology appear to be influenced by social learning because they are more likely to suspend their investment project when other suspensions occur. A 1% increase in the number of other suspensions increases the probability of suspension by an average new technology plant by 3.6%. Others’ suspensions also significantly affects plants that use conventional technology, but it is a negative effect. The conventional technology plants are less likely to suspend their investment project when other firms suspend, which suggests that their payoffs are strategic substitutes as in a “war of attrition” game.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by EconWPA in its series Macroeconomics with number 0409021.
Length: 39 pages
Date of creation: 23 Sep 2004
Date of revision:
Note: Type of Document - pdf; pages: 39. Bank of Canada Working Paper 2004-32
Contact details of provider:
Web page: http://18.104.22.168
social learning; business cycles; investment; technology adoption; observational learning;
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- L63 - Industrial Organization - - Industry Studies: Manufacturing - - - Microelectronics; Computers; Communications Equipment
- C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-09-30 (All new papers)
- NEP-BEC-2004-09-30 (Business Economics)
- NEP-MAC-2004-09-30 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Romer, David, 1993.
"Rational Asset-Price Movements without News,"
American Economic Review,
American Economic Association, vol. 83(5), pages 1112-30, December.
- Caplin, A. & Leahy, J., 1993.
"Miracle on Sixth Avenue: Information Externalities and Search,"
Harvard Institute of Economic Research Working Papers
1665, Harvard - Institute of Economic Research.
- Caplin, Andrew & Leahy, John, 1998. "Miracle on Sixth Avenue: Information Externalities and Search," Economic Journal, Royal Economic Society, vol. 108(446), pages 60-74, January.
- Caplin, A. & Leahy, J., 1993. "Miracle on Sixth Avenue: Information Externalities and Search," Discussion Papers 1993_20, Columbia University, Department of Economics.
- Jeremy Bulow & Paul Klemperer, 1991.
"Rational Frenzies and Crashes,"
NBER Technical Working Papers
0112, National Bureau of Economic Research, Inc.
- Luigi Guiso & Fabiano Schivardi, 2000.
"Information Spillovers and Factor Adjustment,"
Temi di discussione (Economic working papers)
368, Bank of Italy, Economic Research and International Relations Area.
- Chamley, Christophe & Gale, Douglas, 1994.
"Information Revelation and Strategic Delay in a Model of Investment,"
Econometric Society, vol. 62(5), pages 1065-85, September.
- Gale, D. & Chamley, C., 1992. "Information Revelation and Strategic Delay in a Model of Investment," Papers 10, Boston University - Department of Economics.
- Cabalero, R.J., 1997.
97-20, Massachusetts Institute of Technology (MIT), Department of Economics.
- Foster, Andrew D & Rosenzweig, Mark R, 1995.
"Learning by Doing and Learning from Others: Human Capital and Technical Change in Agriculture,"
Journal of Political Economy,
University of Chicago Press, vol. 103(6), pages 1176-1209, December.
- Mark Rosenzweig & Andrew D. Foster, . "Learning by Doing and Learning from Others: Human Capital and Technical Change in Agriculture," Home Pages _068, University of Pennsylvania.
- Demers, Michel, 1991. "Investment under Uncertainty, Irreversibility and the Arrival of Information over Time," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 333-50, April.
- Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
- Caballero, Ricardo J & Engel, Eduardo M R A, 1991.
"Dynamic (S, s) Economies,"
Econometric Society, vol. 59(6), pages 1659-86, November.
- Munshi, Kaivan, 2004. "Social learning in a heterogeneous population: technology diffusion in the Indian Green Revolution," Journal of Development Economics, Elsevier, vol. 73(1), pages 185-213, February.
- Horvath, Michael & Schivardi, Fabiano & Woywode, Michael, 2001. "On industry life-cycles: delay, entry, and shakeout in beer brewing," International Journal of Industrial Organization, Elsevier, vol. 19(7), pages 1023-1052, July.
- William A. Brock & Steven N. Durlauf, 2000.
00-05-028, Santa Fe Institute.
- Welch, Ivo, 1992. " Sequential Sales, Learning, and Cascades," Journal of Finance, American Finance Association, vol. 47(2), pages 695-732, June.
- Caplin, Andrew S, 1985. "The Variability of Aggregate Demand with (S, s) Inventory Policies," Econometrica, Econometric Society, vol. 53(6), pages 1395-1409, November.
- Andrew C. Caplin & Daniel F. Spulber, 1987.
"Menu Costs and the Neutrality of Money,"
NBER Working Papers
2311, National Bureau of Economic Research, Inc.
- Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992.
"A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades,"
Journal of Political Economy,
University of Chicago Press, vol. 100(5), pages 992-1026, October.
- Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010. "A theory of Fads, Fashion, Custom and cultural change as informational Cascades," Levine's Working Paper Archive 1193, David K. Levine.
- Alan S. Blinder, 1981. "Retail Inventory Behavior and Business Fluctuations," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(2), pages 443-520.
- Caplin, Andrew & Leahy, John V, 1993. "Sectoral Shocks, Learning, and Aggregate Fluctuations," Review of Economic Studies, Wiley Blackwell, vol. 60(4), pages 777-94, October.
- Rob, Rafael, 1991. "Learning and Capacity Expansion under Demand Uncertainty," Review of Economic Studies, Wiley Blackwell, vol. 58(4), pages 655-75, July.
- Gale, Douglas, 1996. "What have we learned from social learning?," European Economic Review, Elsevier, vol. 40(3-5), pages 617-628, April.
- Jasmina Arifovic & Alexander Karaivanov, 2007.
"Learning by Doing vs. Learning from Others in a Principal-Agent Model,"
dp07-24, CRABE, Department of Economics, Simon Fraser University.
- Arifovic, Jasmina & Karaivanov, Alexander, 2010. "Learning by doing vs. learning from others in a principal-agent model," Journal of Economic Dynamics and Control, Elsevier, vol. 34(10), pages 1967-1992, October.
- Shaun K. Roache, 2006. "Domestic Investment and the Cost of Capital in the Caribbean," IMF Working Papers 06/152, International Monetary Fund.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).
If references are entirely missing, you can add them using this form.