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Extensive and Intensive Investment Over the Business Cycle


  • Boyan Jovanovic

    () (Department of Economics, New York University)

  • Peter L. Rousseau

    () (Department of Economics, Vanderbilt University)


Investment of U.S. firms responds asymmetrically to Tobin's Q: Investment of established firms -- `intensive' investment -- reacts negatively to Q whereas investment of new firms -- `extensive' investment -- responds positively and elastically to Q. This asymmetry, we argue, reflects a difference between established and new firms in the cost of adopting new technologies. A fall in the compatibility of new capital with old capital raises measured Q and reduces the incentive of established firms to invest. New firms do not face such compatibility costs and step up their investment in response to the rise in Q. A composite-capital version of the model fits the data well using aggregates since 1900 and our new database of firm-level Qs that extend back to 1920.

Suggested Citation

  • Boyan Jovanovic & Peter L. Rousseau, 2009. "Extensive and Intensive Investment Over the Business Cycle," Vanderbilt University Department of Economics Working Papers 0912, Vanderbilt University Department of Economics.
  • Handle: RePEc:van:wpaper:0912

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    References listed on IDEAS

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    Cited by:

    1. Gutierrez, German & Philippon, Thomas, 2016. "Investment-less Growth: An Empirical Investigation," CEPR Discussion Papers 11673, C.E.P.R. Discussion Papers.
    2. Roy Thurik, 2014. "Entrepreneurship and the business cycle," IZA World of Labor, Institute for the Study of Labor (IZA), pages 1-90, October.
    3. Adachi-Sato, Meg & Vithessonthi, Chaiporn, 2017. "Bank systemic risk and corporate investment: Evidence from the US," International Review of Financial Analysis, Elsevier, vol. 50(C), pages 151-163.
    4. Schulte, Reinhard, 2015. "On real investment by new ventures," Lüneburger Beiträge zur Gründungsforschung 12, Leuphana University of Lüneburg, Department of Entrepreneurship & Start-up Management.
    5. Meg Adachi-Sato & Chaiporn Vithessonthi, 2016. "Bank Systemic Risk and Corporate Investment," PIER Discussion Papers 17., Puey Ungphakorn Institute for Economic Research, revised Jan 2016.
    6. Hyunseung Oh & Chamna Yoon, 2016. "Residential construction lags across the US and their implications for housing supply," Vanderbilt University Department of Economics Working Papers 16-00002, Vanderbilt University Department of Economics.

    More about this item


    Compatibility costs; composite capital; vintage capital; Tobin's Q; 20th century investment;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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