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Optimal investment policy with fixed adjustment costs and complete irreversibility

  • Nicolas Roys

    ()

    (Institute for Fiscal Studies and University of Wisconsin)

We develop and solve analytically an investment model with fixed adjust-ment costs and complete irreversibility that reproduces observed investment dynamics at the micro-level. We impose a minimal set of restrictions on technology and uncertainty. Most of the results duplicate or generalize earlier findings that have been established either by simulations or under contrefactual assumptions.

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File URL: http://cemmap.ifs.org.uk/wps/cwp2907.pdf
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Paper provided by Centre for Microdata Methods and Practice, Institute for Fiscal Studies in its series CeMMAP working papers with number CWP29/07.

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Date of creation: Nov 2007
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Handle: RePEc:ifs:cemmap:29/07
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  1. Ricardo J. Caballero & John V. Leahy, 1996. "Fixed Costs: The Demise of Marginal q," NBER Working Papers 5508, National Bureau of Economic Research, Inc.
  2. Ackerberg, Daniel & Lanier Benkard, C. & Berry, Steven & Pakes, Ariel, 2007. "Econometric Tools for Analyzing Market Outcomes," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 63 Elsevier.
  3. Oivind Anti Nilsen & Fabio Schiantarelli, 1996. "Zeroes and Lumps in Investment: Empirical Evidence on Irreversibilities and Non-Convexities," Boston College Working Papers in Economics 337., Boston College Department of Economics, revised 01 Nov 2000.
  4. Ricardo J. Caballero & Eduardo M. R. A. Engel, 1999. "Explaining Investment Dynamics in U.S. Manufacturing: A Generalized (S,s) Approach," Econometrica, Econometric Society, vol. 67(4), pages 783-826, July.
  5. Rüdiger Bachmann & Christian Bayer, 2011. "Investment Dispersion and the Business Cycle," NBER Working Papers 16861, National Bureau of Economic Research, Inc.
  6. Patrick Bajari & C. Lanier Benkard & Jonathan Levin, 2004. "Estimating Dynamic Models of Imperfect Competition," NBER Working Papers 10450, National Bureau of Economic Research, Inc.
  7. Aubhik Khan & Julia K. Thomas, 2007. "Idiosyncratic shocks and the role of nonconvexities in plant and aggregate investment dynamics," Working Papers 07-24, Federal Reserve Bank of Philadelphia.
  8. Cogan, John F, 1981. "Fixed Costs and Labor Supply," Econometrica, Econometric Society, vol. 49(4), pages 945-63, June.
  9. R?diger Bachmann & Ricardo J. Caballero & Eduardo M. R. A. Engel, 2013. "Aggregate Implications of Lumpy Investment: New Evidence and a DSGE Model," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(4), pages 29-67, October.
  10. Cooper, Russell & Haltiwanger, John & Willis, Jonathan L., 2015. "Dynamics of labor demand: Evidence from plant-level observations and aggregate implications," Research in Economics, Elsevier, vol. 69(1), pages 37-50.
  11. Russell W. Cooper & John C. Haltiwanger, 2000. "On the Nature of Capital Adjustment Costs," NBER Working Papers 7925, National Bureau of Economic Research, Inc.
  12. Mark E. Doms & Timothy Dunne, 1998. "Capital Adjustment Patterns in Manufacturing Plants," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 409-429, April.
  13. Andrew B. Abel & Janice C. Eberly, . "A Unified Model of Investment Under Uncertainty," Rodney L. White Center for Financial Research Working Papers 14-93, Wharton School Rodney L. White Center for Financial Research.
  14. Oivind A. Nilsen & Kjell G. Salvanes & Fabio Schiantarelli, 2003. "Employment Changes, the Structure of Adjustment Costs, and Plant Size," Boston College Working Papers in Economics 586, Boston College Department of Economics.
  15. Andrew B. Abel & Janice C. Eberly, 1997. "The Mix and Scale of Factors with Irreversibility and Fixed Costs of Investment," NBER Working Papers 6148, National Bureau of Economic Research, Inc.
  16. Amir, Rabah, 1997. "A new look at optimal growth under uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 22(1), pages 67-86, November.
  17. Sanford J. Grossman & Guy Laroque, 1987. "Asset Pricing and Optimal Portfolio Choice in the Presence of Illiquid Durable Consumption Goods," NBER Working Papers 2369, National Bureau of Economic Research, Inc.
  18. Benveniste, L M & Scheinkman, J A, 1979. "On the Differentiability of the Value Function in Dynamic Models of Economics," Econometrica, Econometric Society, vol. 47(3), pages 727-32, May.
  19. George Hall & John Rust, 2007. "The (S,s) Policy is an Optimal Trading Strategy in a Class of Commodity Price Speculation Problems," Economic Theory, Springer, vol. 30(3), pages 515-538, March.
  20. Virgiliu Midrigan & Daniel Yi Xu, 2010. "Finance and Misallocation: Evidence from Plant-level Data," NBER Working Papers 15647, National Bureau of Economic Research, Inc.
  21. R. Gaston Gelos & Alberto Isgut, 2001. "Fixed Capital Adjustment: Is Latin America Different?," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 717-726, November.
  22. Bayraktar, Nihal & Sakellaris, Plutarchos & Vermeulen, Philip, 2005. "Real versus financial frictions to capital investment," Working Paper Series 0566, European Central Bank.
  23. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
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