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Tobin's Q, non-constant returns to scale, and imperfectly competitive product markets

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  • Robert S. CHIRINKO

    (University of Chicago)

  • Steven M. FAZZARI

    (Washington University)

Abstract

This study explores the impact of non-constant returns to scale and imperfectly competitive product markets on the empirical performance of the q-model of investment. We present an econometric specification linking the unobserved shadow price of capital to financial market data when returns-to-scale are not necessarily constant and product markets are not necessarily competitive. Furthermore, unlike most Q-studies, we work within a discrete-time framework, and give explicit attention to the relations between inventories, sales, and production. Our new specification allows us to recover parameters characterizing returns-to-scale, product market, and adjustment cost elasticities. Estimates are reported for 12 mature industries in the United States drawn from VALUELINE.

Suggested Citation

  • Robert S. CHIRINKO & Steven M. FAZZARI, 1988. "Tobin's Q, non-constant returns to scale, and imperfectly competitive product markets," Discussion Papers (REL - Recherches Economiques de Louvain) 1988031, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvre:1988031
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    Cited by:

    1. Chirinko, Robert S. & Schaller, Huntley, 1996. "Bubbles, fundamentals, and investment: A multiple equation testing strategy," Journal of Monetary Economics, Elsevier, vol. 38(1), pages 47-76, August.
    2. Georgy Idrisov, 2010. "Factors of Demand for Imported Goods for Investment Purpose to Russia," Research Paper Series, Gaidar Institute for Economic Policy, issue 138P.

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