Limited Attention, Interaction and the Growth of a Firm
AbstractA person cannot make many decisions at a time, but an organization needs millions of interrelated decisions. We incorporate this idea into investment theory and examine its influence on a firm's growth rate. Two assumptions are emphasized: an agent cannot optimize more than one input at a time, and there is interaction among inputs. Each investment is lumpy, but adjustment is gradual. Without an adjustment cost function and exogenous shocks, we derive the growth rate of a firm. The derived growth rate is independent of firm size and imperfectly correlated with Tobin's Q.
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Bibliographic InfoPaper provided by EconWPA in its series Macroeconomics with number 0506005.
Length: 47 pages
Date of creation: 05 Jun 2005
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Limited Attention; Complementarity and Substitutability; Investment; Tobin's Q.;
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