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Recurrent intervals of inattention to the stock market are optimal if consumers incur a utility cost to observe asset values. When consumers observe the value of their wealth, they decide whether to transfer funds between a transactions account from which consumption must be financed and an...
Persistent link: https://www.econbiz.de/10012463639
When factors of production can be adjusted costlessly, the mix of factors can be considered separately from their scale. We examine factor choice and utilization when investment is irreversible and subject to a fixed cost, so that the capital stock is a quasi-fixed factor that is adjusted...
Persistent link: https://www.econbiz.de/10012472665
When investment decisions cannot be reversed and returns to capital are uncertain, the firm faces a higher user cost of capital than if it could reverse its decisions. This higher user cost tends to reduce the firm's capital stock. Opposing this effect is the irreversibility constraint itself:...
Persistent link: https://www.econbiz.de/10012473506
Capital investment decisions must recognize the limitations on the firm's ability later to sell off or expand capacity. This paper shows how opportunities for future expansion or contraction can be valued as options, how this valuation relates to the q-theory of investment, and how these options...
Persistent link: https://www.econbiz.de/10012473650
This paper derives closed-form solutions for the investment and market value, under uncertainty, of competitive firms with constant returns to scale production and convex costs of adjustment. Solutions are derived for the case of irreversible investment as well as for reversible investment....
Persistent link: https://www.econbiz.de/10012474539
This paper extends the theory of investment under uncertainty to incorporate fixed costs of investment, a wedge between the purchase price and sale price of capital, and potential irreversibility of investment. In this extended framework, investment is a non-decreasing function of q, the shadow...
Persistent link: https://www.econbiz.de/10012474664
The impact of an economic shock depends both on its severity and the resilience of the economic response. Resilience can include the ability to relocate factors, for example, even when new technologies or skills are not yet at the ready. This resilience per se buffers production and has an...
Persistent link: https://www.econbiz.de/10012660108
In recent years, US investment has been lackluster, despite rising valuations. Key explanations include growing rents and growing intangibles. We propose and estimate a framework to quantify their roles. The gap between valuations -- reflected in average Q -- and investment -- reflected in...
Persistent link: https://www.econbiz.de/10012599278
In recent years, measured TFP growth in the US has declined. We argue that two forces contributed to this decline: the mismeasurement of intangible capital, and rising markups. Markups affect input shares, while intangibles omitted from measures of investment affect measured capital growth, each...
Persistent link: https://www.econbiz.de/10012599399
We document that the rise of factors such as software, intellectual property, brand, and innovative business processes, collectively known as "intangible capital" can explain much of the weakness in physical capital investment since 2000. Moreover, intangibles have distinct economic features...
Persistent link: https://www.econbiz.de/10012479818