IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

The Investment Decision of the Post-Keynesian Firm: A Suggested Microfoundation for Minsky's Investment Instability Thesis

Listed author(s):
  • James Crotty
  • Jonathan Goldstein

In this paper, Crotty and Goldstein undertake the formulation of a model of enterprise investment decision that can provide a microeconomic foundation for the Keynes-Minsky macromodels developed by Delli Gatti & Gallegati, Jarsulic, Semmler and others. The authors address the difficulties inherent in the formulation of an investmes theory in which the future is unknowable, and investment substantially irreversible. Where Minsky accepts a variation of the Tobin-q theory-in which owners and managers are assumed to be identical economic agents-Crotty and Goldstein look to Keynes' insistence on their qualitative difference. Financial commitments to creditors are certain, while expected profits are not. Thus, the interests of stockholders and other creditors represent a potential threat to the autonomy management needs to ensure the security of the enterprise itself. The authors derive the comparative static properties of the optimal investment decision, the essence of which they show to be the growth-safery tradeoff whereby management must sacrifice financial security to obtain growth and vice-versa. The model is shown to be able to generate both the "waiting to invest" result of the irreversible investment literature, and the major theoretical relation empirically tested and confirmed by Fazzari, Hubbard and Peterson (1988). This model explains a demand side effect rather than a supply side influence. The many subjective and financial variables in the model reflect: i)managerial attitudes, ii) management's confidence in its ability to forecast meaningfully, iii) the financial status of the firm, and iv) the profit markup. This theory is too complex to find incorporation in a formal, mathematical business cycle model. However, using the example of the end-of-expansion, onset-of-crisis phase of a Minsky cycle, the authors show that their results can be used to model the characteristics of post-war business cycles in a manner consistent with Minsky's work.

If 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.

File URL:
Download Restriction: no

Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_79.

in new window

Date of creation: Sep 1992
Handle: RePEc:lev:wrkpap:wp_79
Contact details of provider: Web page:

References listed on IDEAS
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.:

in new window

  1. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:lev:wrkpap:wp_79. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Elizabeth Dunn)

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.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.