investment spikes new facts and a general equilibrium exploration abstract using plant level data from chile and the u s we show that investment spikes are highly pro cyclical so much so that changes in the number of establishments undergoing investment spikes the extensive margin account for the bulk of variation in aggregate investment the number of establishments undergoing investment spikes also has independent predictive power for aggregate investment even controlling for past investment and sales we re calibrate the thomas 2002 is lumpy investment relevant for the business cycle journal of political economy cx 508 534 model that includes fixed costs of investing so that it assigns a prominent role to extensive adjustment the recalibrated model has different properties than the standard rbc model for some shocks

financial factors and investment in belgium france germany and the united kingdom a comparison using company panel data we construct company panel data sets for manufacturing firms in belgium france germany and the united kingdom covering the period 1978 1989 these data sets are used to estimate empirical investment equations and to investigate the role played by financial factors in each country a robust finding is that cash flow and profits terms appear to be both statistically and quantitatively more significant in the united kingdom than in the three continental european countries this is consistent with the suggestion that financial constraints on investment may be relatively severe in the more market oriented u k financial system

risk aversion and adaptive management insights from a multi armed bandit model of invasive species risk this article explores adaptive management am for decision making under environmental uncertainty in the context of targeting invasive species inspections of agricultural imports i find that risk aversion increases the relative value of am and can increase the rate of exploratory action while calls for am in natural resource management are common many analyses have identified modest gains from this approach i analytically and numerically examine the distribution of outcomes from am under risk neutrality and risk aversion the inspection decision is framed as a multi armed bandit problem and solved using the lagrangian decomposition method results show that even when expected gains are modest asymmetry in the distribution of outcomes has important implications notably am can serve to buffer against large losses even if the most likely outcome is a small loss

how responsive is business capital formation to its user cost an exploration with micro data abstract the response of business capital formation to its user cost is critical to evaluating tax reform deficit reduction and monetary policy evidence for a substantial user cost elasticity however is sparse most evidence has been based on aggregate data although several recent studies with firm level data report substantial effects with a particularly rich micro dataset containing over 26 000 observations this paper explores what can be learned about the user cost elasticity while the results depend to some extent on the specification and econometric technique various diagnostics lead us to prefer a precisely estimated but small elasticity of approximately 0 25 this paper is dedicated to the memory of robert eisner who labored early and ably on uncovering the determinants of investment spending and highlighting the importance of the question found in the title of this paper

another look at the linear q model an empirical analysis of aggregate business capital spending with maintenance expenditures the paper revisits the empirical investment literature which has established that aggregate business fixed investment is not found to be related linearly to marginal or average tobin s q the theoretical background is extended here by developing a supply side model where the depreciation rate of private capital is determined endogenously the firm can either invest in new capital which adds directly to the existing capital stock at the presence of convex adjustment costs or extend the durability of installed capital through maintenance expenditure which affects its depreciation rate the model shows that tobin s q is then a positively related sufficient statistic for both components of aggregate capital expenditures this central implication is tested empirically using aggregate time series survey data from canada on new investment and maintenance expenditures covering the period 1956 93 the estimated relationships produce significant and plausible parameter estimates for the structural parameters of the q model le texte examine la litterature empirique sur l investissement qui a etabli que le niveau d investissement agrege des entreprises en capital fixe n est pas relie de facon lineaire au coefficient moyen ou marginal q de tobin on enrichit l arriere plan theorique en developpant un modele d offre dans lequel le taux de depreciation du capital prive est determine de facon endogene l entreprise peut soit investir dans du capital nouveau ce qui ajoute directement au stock de capital existant soit allonger la vie du capital en place par des depenses de maintenance qui modifient le taux de depreciation le modele montre que le coefficient q de tobin est alors positivement relie aux deux composantes des depenses agregees en capital cette implication importante est mise au test empiriquement en utilisant les series chronologiques en provenance des enquetes de statistiques canada sur les nouveaux investissements et les depenses de maintenance pour la periode 1956 93 les relations estimees produisent des parametres plausibles et significatifs pour les parametres structurels du modele q

marketing information a competitive analysis selling information that is later used in decision making constitutes an increasingly important business in modern economies jensen jensen fred o 1991 information services congram friedman eds the ama handbook of marketing for the service industries chapter 22 ama com new york 423 443 information is sold under a large variety of forms industry reports consulting services database access and or professional opinions given by medical engineering accounting financial and legal professionals among others this paper is the first attempt in marketing to study competition in the rapidly emerging information sector specifically we are interested in answering the following questions 1 is competition fundamentally different when competing firms sell information rather than traditional goods and services and if yes why 2 what are the implications of such differences for decision makers marketers and regulators 3 can we explain some of the observed marketing strategies in the information industry as such the audience of the paper includes academics as well as professionals who are interested in understanding what is specific about competition in information markets familiarity with the practical implications of such differences and understanding of the mechanisms that drive them is essential for those who are faced with the problem of marketing information to answer the above research questions we build a simple game theoretic model that consists of two firms selling information to a population of consumers who are heterogeneous in their willingness to pay for the quality of information the most important features of the model are the following information products sold by the two firms are modeled as random draws from two normal distributions having equal mean the variances of these distributions and their correlatedness constitute the product attribute space which is assumed to be common knowledge consumers are interested in assessing the mean of the distributions and to do so they can buy the sample from any of the firms or they can buy both samples and combine them to obtain a more accurate estimate quality of information is linked to the accuracy of consumers estimate of the mean which in turn is influenced by the accuracy of each sample as well as by their correlatedness consumers utility depends on the quality of information they purchased on their inherent utility for quality taste and on the total price they paid to acquire information knowing consumer preferences firms simultaneously price their information products the main finding of the paper is that information markets face unique competitive structures in particular the qualitative nature of competition changes depending on basic product characteristics while traditional products and services compete either as substitutes or as complements in the relevant product attribute space information may be one or the other depending on its position within the same product attribute space said differently the nature of competition changes qualitatively with a continuous change in basic product attribute levels the intuition behind this finding is the following when purchasing information consumers facing important decisions may find it beneficial to purchase from several information sellers this is more likely to happen when the reliability of information is low and the sources of information are independent under such conditions information products tend to be complements and as a result competition between sellers is relatively mild in the opposite case when information is reliable and or sellers sources are highly correlated consumers are satisfied after consulting a single source in this case information products are substitutes and sellers tend to undercut one another s prices to induce consumers to choose their brand understanding this discontinuity in competitive structures has important implications for decision makers as very different strategies are optimal under different product characteristics under substitution traditional strategies to avoid competition e g differentiation are recommended when the competing products reliability is generally low they are complements firms are better off accommodating competition in fact we find that a firm may benefit from inviting a competitor finally our findings are also important for regulators of information markets as the literature on complementarity suggests price fixing agreements between firms offering complementary products may benefit firms as well as consumers

investment and time to plan and build a comparison of structures vs equipment in a panel of italian firms time to build models of investment expenditures play an important role in many traditional and modern theories of the business cycle especially for explaining the dynamic propagation of shocks we estimate the structural parameters of a time to build model using annual firm level investment data on equipment and structures for expenditures on equipment we find no evidence of time to build effects beyond one year for expenditures on structures by contrast there is clear evidence of such effects in the range of two to three years the contrast between equipment and structures is intuitively reasonable and consistent with previous results the estimates for structures also indicate that initial period expenditures are low and increase as projects near completion these results provide empirical support for including time to plan effects for investment in structures more generally these results suggest a potential source of specification error for q models of investment and production based asset pricing models that ignore the time required to plan build and install new capital jel d24 g31 c33 c34

monetary policy transmission in the euro area new evidence from micro data on firms and banks this paper presents an overview of the results of a research project on monetary transmission pursued by the eurosystem which has analysed micro data on firms and banks in several countries of the euro area in great detail there is strong empirical support for an interest rate channel working through firm investment furthermore a credit channel can be identified with firm micro data on the bank side there is evidence that lending reacts differently to monetary policy according to bank balance sheet characteristics in particular banks that have a less liquid asset composition show a stronger loan supply response this finding may be due to banks drawing on their liquid assets to cushion the effects of monetary policy on their loan portfolio which is in line with the existence of close relationships between banks and their loan customers

risk aversion information acquisition and technology adoption we use a dynamic programming model to study the impacts of risk aversion on information acquisition in technology adoption decisions in this model the benefit of the technology is uncertain and in each period the decision maker dm may adopt the technology reject the technology or pay to acquire a signal about the benefit of the technology the dynamic programming state variables are the dm s wealth and a probability distribution that describes the dm s beliefs about the benefit of the technology these distributions are updated over time using bayes rule if the signal generating process satisfies the monotone likelihood ratio property and the dm is risk neutral the value functions and policies satisfy natural monotonicity properties a likelihood ratio improvement in the distribution on benefits leads to an increase in the value function and moves the dm away from rejection and toward adoption with risk aversion the value functions now representing expected utilities will be monotonic but

government institutional effects on the value of seasonal climate forecasts the impact of government institutions on the value of improved climate forecasts is examined results suggest that crop insurance and earned income tax credit have little effect on the expected change in after tax cash flows federal tax law has only a modest influence as expected the disaster program decreases the value of improved climate forecasts with no price changes the farm program lowers the value of the forecasts because of the acreage reduction provisions with at least some price decreases the farm program increases the value of climate forecasts here the price supports override the acreage reduction provisions

investment adjustment costs an empirical assessment we evaluate empirical evidence for costs that penalize changes in investment using us industry data in aggregate models such investment adjustment costs have been introduced to help account for a variety of business cycle and asset market phenomena so far no attempt has been made to estimate these costs directly at a disaggregated level we consider an industry model with investment adjustment costs and estimate its parameters using generalized methods of moments the ndings indicate small costs associated with changing the ow of investment at the industry level the weighted average of the industry elasticities with respect to the shadow price of capital which depends inversely on the adjustment cost parameter is more than seven times larger than the largest estimate based on aggregate data we examine potential sources which may account for the large industry aggregate dierence overall our results suggest

information and preference reversals in lotteries several approaches have been proposed for evaluating information in expected utility theory among the most popular approaches are the expected utility increase the selling price and the buying price while the expected utility increase and the selling price always agree in ranking information alternatives hazen and sounderpandian 11 have demonstrated that the buying price may not always agree with the other two that is in some cases where the expected utility increase would value information a more highly than information b the buying price may reverse these preferences in this paper we discuss the conditions under which all these approaches agree in a generic decision environment where the decision maker may choose to acquire arbitrary information bundles

optimal strategies for selecting project portfolios using uncertain value estimates abstract practically all organizations seek to create value by selecting and executing portfolios of actions that consume resources typically the resulting value is uncertain and thus organizations must take decisions based on ex ante estimates about what this future value will be in this paper we show that the bayesian modeling of uncertainties in this selection problem serves to i increase the expected future value of the selected portfolio ii raise the expected number of selected actions that belong to the optimal portfolio ex post and iii eliminate the expected gap between the realized ex post portfolio value and the estimated ex ante portfolio value we also propose a new project performance measure defined as the probability that a given action belongs to the optimal portfolio finally we provide analytic results to determine which actions should be re evaluated to obtain more accurate value estimates before portfolio selection in particular we show that the optimal targeting of such re evaluations can yield a much higher portfolio value in return for the total resources that are spent on the execution of actions and the acquisition of value estimates

valuation and management of tropical forests implications of uncertainty and irreversibility this paper develops a framework for the valuation and management of tropical forests that reflects their ecological and economic characteristics the analysis demonstrates the importance of modeling the feasible use patterns and the information structure in tropical forest management decisions the model predicts that cases exist where the foresighted management of forests leads to more preservation than the traditional expected value approach an application in thailand provides evidence that such cases occur in relevant ranges of benefit flows the model focuses tropical forest management on assessments of sustainability and feasible sequences in light of uncertainty and information flows

the determinants of information value synthesizing some general results this paper identifies the determinants of information value and synthesizes some general results concerning their effects while some attributes of an information system exhibit a consistent directional effect on information value attributes of the decision setting and decision maker do not

explaining the investment boom of the 1990s real equipment investment in the united states boomed in the 1990s led by soaring investment in computers we find that traditional aggregate econometric models completely fail to capture the magnitude of this growth mainly because these models neglect to address two features that were crucial and unique to the 1990s investment boom first the pace at which firms replace depreciated capital increased second investment was more sensitive to the cost of capital we document that these two features stem from the special behavior of investment in computers and therefore propose a disaggregated approach this produces an econometric model that successfully explains the 1990s equipment investment boom

valuing forecast characteristics in a dynamic agricultural production system a dynamic programming model of east central illinois corn production is utilized to determine the value of seasonal climate forecasts results indicate that the value of climate forecasts is sensitive to economic conditions as well as forecast characteristics a trade off between forecast accuracy and lead time exists a less accurate forecast received earlier in the production process may be more valuable than a more accurate forecast received later additional characteristics evaluated include forecast periods of greatest importance prior knowledge assumptions and interactions between forecasting adjacent periods

market information and firm performance the value of new information depends on how accurate the information is but it may also depend on the characteristics of the firm and the nature of the industry it operates in we develop a game theoretic model to understand how firm and industry characteristics moderate the effect of market information on firm profits our results suggest that information is more valuable when product substitutability is higher suggesting that information is of greater value in more competitive industries our results also suggest that although industry size does not affect the value of information information is more valuable for larger firms we find that except under some conditions more precise market information has a greater impact on profits in a stackelberg mode of conduct than in a bertrand nash mode

estimating the euler equation for output new keynesian macroeconomic models have generally emphasized that expectations of future output are a key factor in determining current output the theoretical motivation for such forward looking behavior relies on a straightforward generalization of the well known euler equation for consumption in this paper we use maximum likelihood and generalized method of moments gmm methods to explore the empirical importance of output expectations we find little evidence that rational expectations of future output help determine current output especially after taking into account the small sample bias in gmm

information technology and organization design locating decisions and information we study the impact of information technology it on the profitability of individual organization designs and on the relative profitability of different organization designs we develop models where organization design is defined by the location of investment decision authority we consider global and local investment when there is an information asymmetry between a central authority and decentralized nodes decentralized nodes make better local investment decisions because of their local knowledge we define three separate organization designs a hierarchy where all investments are made by a central authority a market where all investments are made by the decentralized nodes and a mixed mode where global investments are made by a central authority and local investments are made by decentralized nodes because of complementarities between global and local investment we show that there is under investment relative to first best in all three organization designs we also find that it can be used to mitigate that underinvestment either by bringing information to the decision maker or by redesigning the monitoring and incentive structure we demonstrate that it does not necessarily favor decentralized organization designs and we show how the costs of coordination may resultin the mixed mode being dominated by one or both of the alternative organization designs thus collocation of investment decision rights and information that results in decisions that require coordination might not be optimal when the costs of not synchronizing global and local investment are high

payoff dependence of comparative statics results on information structure abstract this paper investigates in a general decision problem how a first period choice is influenced by varying amounts of information with cara utility functions the effect of a better information structure is established by conditions on the outcome function

estimating the euler equation for aggregate investment with endogenous capital depreciation this article looks at the empirical consequences of introducing endogenous capital depreciation in the standard neoclassical model with quadratic adjustment costs to this end we formulate an empirical specification that accommodates capital maintenance and utilization in the euler equations for aggregate investment the empirical estimates with data from the canadian survey on capital and repair expenditures show that in contrast to the existing literature the performance of the euler equations is improved when we account for the impact of variable capital depreciation

information acquisition as an american option abstract many information acquisition activities can be postponed within a predefined time frame in uncertain situations the option to postpone the information acquisition to a later more favorable time may create value we discuss the value that comes from holding an option to acquire information in a time period and suggest a simulation based numerical approach to calculate the associated value we discuss that the value of information in a time period may be very different from the value of information in a single point in time this value is closely linked to the uncertainty of the decision outcomes over the time period

optimal regulation of multinationals under collusion this paper analyses the optimal collusion proof mechanism for the regulation of multinational firms mnfs in foreign direct investment fdi projects there is a host country with a profitable investment opportunity either a multinational firm mnf or a local firm lf can undertake this project nonetheless due to its firm specific advantage and the mnf has the potential to create a larger surplus the host government faces an informational constraint such that it cannot observe the extra surplus the mnf can generate using this set up karabay 2010 shows that employing foreign ownership restrictions to force a joint venture jv can help the host government to partially overcome its information disadvantage in this paper we extend karabay 2010 by studying the host government s optimal regulatory policy when the mnf and the lf can collude it turns out collusion imposes no cost on the host government and the expected welfare attained in the absence of collusion can still be secured under collusion

aging pension reform and capital flows a multi country simulation model we present a quantitative analysis of the effects of population aging and pension reform on international capital markets first demographic change alters the time path of aggregate savings within each country second this process may be amplified when a pension reform shifts old age provision towards more pre funding third while the patterns of population aging are similar in most countries timing and initial conditions differ substantially hence to the extent that capital is internationally mobile population aging will induce capital flows between countries all three effects influence the rate of return to capital and interact with the demand for capital in production and with labor supply in order to quantify these effects we develop a computational general equilibrium model we feed this multi country overlapping generations model with detailed long term demographic projections for seven world regions our simulations indicate that capital flows from fast aging regions to the rest of the world will initially be substantial but that trends are reversed when households decumulate savings we also conclude that closed economy models of pension reform miss quantitatively important effects of international capital mobility this version 25 august 2004

the baby boom and the stock market boom this paper addresses two issues the first is whether demographic change was plausibly responsible for the run up in stock prices over the last decade and whether an attempt by the baby boom cohort to cash out of its investments in the period 2010 2030 might lead to an asset meltdown the second issue is whether the rise in dependency that will accompany the retirement of the baby boom cohort calls for an increase in national saving we analyze these issues using a forward looking macro demographic model and show that they are related via the existence of installation costs for capital if such costs are sufficiently large then demographics do have the power to affect stock prices but saving for america s old age is less optimal however conventional estimates of capital installation costs are not large enough to explain large stock price movements in response to actual demographic change

new and old models of business investment a comparison of forecasting performance previous empirical evaluations of investment models have focused on the relative in sample fit of various nonstructural models the authors evaluation extends this work along two dimensions first they augment the usual set of models with two euler equations derived explicitly from dynamic optimization under rational expectations one euler equation is typical of those found in the investment literature while the other embeds time to build lags that yield a richer dynamic structure second the authors focus on out of sample forecast performance as the primary criterion of model evaluation their results indicate that the traditional models dominate both euler equations in forecasting investment copyright 1995 by ohio state university press