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Limited Attention, Interaction and the Growth of a Firm

  • Katsuya Takii

    (Osaka School of International Public Policy, Osaka University)

A 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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Paper provided by EconWPA in its series Macroeconomics with number 0506005.

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Length: 47 pages
Date of creation: 05 Jun 2005
Date of revision:
Handle: RePEc:wpa:wuwpma:0506005
Note: Type of Document - pdf; pages: 47
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  1. Bent Jesper Christensen & Rasmus Lentz & Dale T. Mortensen & George R. Neumann & Axel Werwatz, 2005. "On-the-Job Search and the Wage Distribution," Journal of Labor Economics, University of Chicago Press, vol. 23(1), pages 31-58, January.
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  8. Cabalero, R.J., 1997. "Aggregaete Investment," Working papers 97-20, Massachusetts Institute of Technology (MIT), Department of Economics.
  9. Eran Yashiv, 2000. "The Determinants of Equilibrium Unemployment," American Economic Review, American Economic Association, vol. 90(5), pages 1297-1322, December.
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  11. Sharon Gifford, 1992. "Innovation, Firm Size and Growth in a Centralized Organization," RAND Journal of Economics, The RAND Corporation, vol. 23(2), pages 284-298, Summer.
  12. Abel, Andrew B & Eberly, Janice C, 1994. "A Unified Model of Investment under Uncertainty," American Economic Review, American Economic Association, vol. 84(5), pages 1369-84, December.
  13. 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.
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