a note on competitive investment under uncertainty uncertainty over future output prices or input costs can affect investment by a riskneutral firm in two opposing ways first it can increase the value of the marginal unit of capital which leads to more investment this only requires that the stream of future profits generated by the marginal unit be a convex function of the stochastic variable by jensen s inequality the expected present value of that stream is increased this result was demonstrated by richard hartman 1972 and later extended by andrew abel 1983 and others in their models constant returns to scale and the substitutability of capital with other factors ensure that the marginal profitability of capital is convex in output price and input costs even with fixed proportions however this convexity can result from the ability of the firm to vary output so that the marginal unit of capital need not be utilized at times when the output price is low or input costs are high if investment is irreversible and can be postponed a second effect of uncertainty is to create an opportunity cost of investing now rather than waiting for new information to arrive before committing resources this increases the full cost of investing in a marginal unit of capital which reduces investment 2 hence the net effect of uncertainty on irreversible investment depends on the size of this opportunity cost relative to the increase in the value of the marginal unit of capital the sign of the net effect is significant because of its possible policy implications pindyck 1988 and giuseppe bertola 1989 developed models in which a firm faces a downward sloping demand curve and found the net effect to be negative ricardo caballero 1991 has recently studied investment by an individual firm facing a stochastically shifting demand curve he shows that as returns to scale become constant and the elasticity of demand faced by the firm rises this opportunity cost of investing now rather than waiting approaches zero thus in the limit of constant returns and an infinitely elastic demand curve an increase in uncertainty tends to raise rather than decrease current investment even if that investment is irreversible it is important to stress that caballero s limiting result treats the firm in isolation and describes the effect of a meanpreserving increase in price uncertainty and not an increase in industry wide demand uncertainty this note shows that in a competitive market the key interactions between irreversibility and uncertainty occur at the industry level and can only be understood by making price and industry output endogenous 3 doing so restores the positive opportunity cost associated with irreversible investment in addition caballero s result is based on a model with convex adjustment costs an innovative aspect of the model is that these costs can be asymmetric thereby allowing for partial or complete irreversibility complete irreversibility corresponds to a cost of massachusetts institute of technology cambridge ma 02139 this work was supported by the national science foundation under grant no ses 8618502 and by mit s center for energy policy research my thanks to julio rotemberg and especially ricardo caballero for very helpful comments and discussions 1then the marginal profit of capital at each time t in the future is max o pt ct where ct is variable cost thus a unit of capital represents a set of all options on future production which are worth more the greater the variance of pt or ct 2for a detailed discussion of this point and a survey of the recent literature on irreversibility and its implications for investment and market evolution see pindyck 1991 3studies that make price endogenous include steven lippman and richard rumelt 1985 avinash dixit 1989 1991 and john leahy 1990

investment uncertainty and liquidity we analyze the dynamic investment decision of a firm subject to an endogenous financing constraint the threat of future funding shortfalls lowers the value of the firm s timing options and encourages acceleration of investment beyond the first best optimal level as well as highlighting another way by which capital market frictions can distort investment behavior this result implies that 1 the sensitivity of investment to cash flow can be greatest for high liquidity firms and 2 greater uncertainty has an ambiguous effect on investment

asymmetric effects of oil price uncertainty on corporate investment abstract using a comprehensive data set of a large panel of us firms over 1984 2017 we show that the negative effect of crude oil price return uncertainty on investments is asymmetric in particular we show that investment is more significantly reduced following the volatility of positive oil price changes than that of negative changes and this asymmetric effect is more pronounced in small firms in addition we find that the asymmetric effect is stronger in the crude oil and gas producing companies where the effect of the volatility of negative oil price changes is greater than that of positive oil price changes we also find that the impact of positive or negative oil price change uncertainty on investments substantially differs across different industries the results are quite robust to the way in which we measure the investment and oil price uncertainty and to alternative regression methods

measuring the costs of children an alternative approach abstract the cost of a child or the general equivalence scale as it is more commonly known is a concept of considerable importance in matters relating to public policy and welfare it has played a crucial part in numerous theoretical and empirical studies relating to poverty income distribution dietary needs income maintenance programs supplementary and child benefits and other forms of social security payments in a welfare state and in assessing the horizontal equity of income taxation in spite of a long tradition of estimating the scale from observed household budget data there remain severe problems in estimation and interpretation of the scales this paper proposes a new methodology for calculating the scale using a framework which is consistent with utility theory and which overcomes the identification problem without having to enforce the arbitrary prior assumptions of recent studies the proposed method allows easy calculation of not only the basic scale parameter but also how it varies with price and reference utility we illustrate the usefulness of the procedure by estimating on u k budget data at two different levels of aggregation and employing two sets of quite different functional forms the results are plausible compare favourably with one another and hence confirm the robustness and usefulness of the proposed procedure

product market competition and the impact of price uncertainty on investment some evidence from us manufacturing industries the authors estimate the impact of price uncertainty on investment using a panel of u s manufacturing industries pooling the data for all industries uncertainty has no impact on current investment however for industries that have low levels of seller concentration and thus are likely to be highly competitive the estimated impact is negative and statistically significant while for industries with high levels of seller concentration the impact is always small and not significantly different from zero the finding of a negative relationship between investment and price uncertainty in competitive industries is broadly consistent with models that incorporate irreversibility of capital investment copyright 1996 by blackwell publishing ltd

the influence of household composition on household expenditure patterns theory and spanish evidence a concept of demographic separability is proposed that formalizes the notion that there are groups of goods adult goods that have little or no relationship to specific classes of household demographics the numbers or ages of children that there exist adult goods demographically separable from children is a necessary but not sufficient condition for the validity of rothbarth s method for measuring child costs we propose two different methods for testing demographic separability and present results from a 1981 survey of spain the econometric evidence is in fair agreement with the theoretical presuppositions

on measuring child costs with applications to poor countries the theoretical basis for measuring child costs is discussed and detailed consideration is given to two straightforward procedures for calculation engel s food share method and rothbarth s adult good method each of these methods embodies different definitions of child costs so that the same empirical evidence can generate quite different estimates depending on the method used it is shown that true costs are generally overstated by engel s method and understated by rothbarth s procedure although the latter unlike the former can provide a sensible starting point for cost measurement our estimates from sri lankan and indonesian data suggest that children cost their parents about 30 40 percent of what they spend on themselves

symposium on mergers and antitrust m x ergers and acquisitions spark ongoing controversy in the economics profession and in society at large this is not surprising billion dollar deals not only involve a great deal of money but they often raise economic issues implicating capital and labor markets as well as the markets for the products sold by the merger partners because of this merger enforcement is probably the most widely known area of antitrust however economists who do not specialize in industrial organization generally have little understanding of the type of competitive analysis that forms the basis for merger enforcement by the antitrust authorities and the courts this is unfortunate not only does this analysis have important social implications but when formulated rigorously the analytic model used in antitrust represents a simple yet quite sophisticated microeconomic model of competition in the past ten years economics and economists have become far more important in antitrust the so called chicago school of antitrust has provided the intellectual rationale for a considerable loosening of antitrust law its intellectual leaders for example robert bork richard posner and frank easterbrook have become judges and soon may ascend to or already have joined the supreme court economists like james miller and george douglas have become federal trade commissioners and the staff economists at the commission and the department of justice have gained considerable influence

household equivalence scales and interpersonal comparisons recent papers have used household equivalence scales to construct measures of welfare inequality this procedure rests on an often implicit value judgement namely that if after adjustment for demographic characteristics two households are on the same indifference curve they are equally well off that value judgement is not compelling and there are situations in which it is ethically repugnant this is particularly likely if tastes are functions of past experience and income

uncertainty determinants of firm investment abstract we investigate the impact of measures of uncertainty on firms capital investment behavior using a panel of u s firms increases in firm specific and capm based measures have a significant negative effect on investment spending while market based uncertainty has a positive impact

poverty and household size the widely held view that larger families tend to be poorer in developing countries has influenced research and policy the scope for size economies in consumption cautions against this view we find that the correlation between poverty and size vanishes in pakistan when the size elasticity of the cost of living is about 0 6 this turns out to be the elasticity implied by a modified version of the food share method of setting scales by contrast some measures of child nutritional status indicate an elasticity of unity consideration of the weight attached to child versus adult welfare may help resolve the non robustness of demographic profiles of poverty excerpt

inventories sales uncertainty and financial strength abstract we investigate the empirical linkages between sales uncertainty and firms inventory investment behavior while controlling for firms financial strength using large panels of manufacturing firms from several european countries we find that higher sales uncertainty leads to larger stocks of inventories we also identify an indirect effect of sales uncertainty on inventory accumulation through the financial strength of firms our results provide evidence that financial strength mitigates the adverse effects of uncertainty

oligopoly supergames some empirical evidence on prices and margins this paper is a panel data study on the behavior of prices and margins of oligopolies involved in repeated games the authors examine two supergame models which generate very different predictions about the cyclical behavior of prices and margins evidence on the levels of price cost margins indicates that oligopolies achieve equilibria that more closely resemble a one shot cournot nash outcome than monopoly the authors find however that industries with high price cost margins exhibit cyclical price behavior which is quite different from that of unconcentrated industries little evidence of price wars during either recessions or booms is found copyright 1987 by blackwell publishing ltd

the effect of oil price volatility on strategic investment in this paper we investigate how oil price volatility affects the strategic investment decisions of a large panel of us firms this paper uses key insights from the real options literature to develop a model of a company s strategic investment and shows how changes in oil price volatility can impact strategic investment decisions the model is estimated using recently developed generalized method of moment estimation techniques for panel data sets empirical results are presented to show that there is a u shaped relationship between oil price volatility and firm investment this is consistent with the predictions from the strategic growth options literature the results should be useful to decision makers investors managers policy makers and others who need to make strategic investment decisions in an uncertain world

industry wide versus firm specific uncertainty and investment british company panel data evidence this paper presents evidence on the prediction that the impacts of firm specific and industry wide uncertainty on investment will be different results show that these work in opposing directions and that the effect of industry specific uncertainty is stronger in concentrated industries

empirical evidence of risk shifting in financially distressed firms this paper provides evidence of risk shifting behavior in the investment decisions of financially distressed firms using a real options framework i show that shareholders risk shifting incentives can reverse the expected negative relation between volatility and investment i test two hypotheses that are consistent with risk shifting behavior i volatility has a positive effect on distressed firms investment ii investments of distressed firms generate less value during times of high uncertainty empirical evidence using 40 years of data supports both hypotheses i further evaluate the effect of various firm characteristics on risk shifting and estimate the costs of the investment distortion

uncertainty and the employment dynamics of small and large businesses we examine the impact of uncertainty on employment dynamics alternative measures of uncertainty are constructed based on the survey of professional forecasters and regression based forecasting models for gdp growth inflation sp the impact on large businesses are generally non existent or weaker our results suggest that to truly understand the effects of uncertainty on employment dynamics we need to focus on the relatively smaller and entrepreneurial businesses we discuss implications for the framing of economic policy

the design of direct taxation and family benefits abstract the subject of this paper is the design of the personal income tax and social security benefits that vary with the size of the family it is concerned with the analytical problems of policy design that arise from constraints on the instruments which may be used from differences in social judgements about the desirability of redistribution and from differences of view about the disincentive effects of taxation the paper considers these issues in the context of the french tax benefit system and the implications of the french system being harmonised towards certain features of the british system

has poverty gotten worse iven the major changes now being implemented in programs aimed atalleviating poverty in the united states it is important to have a goodunderstanding of how the extent of poverty has evolved over the lastcouple of decades has poverty gotten worse or have we been gradually winningthe war on poverty there is unanimous agreement that there was a steady and dramatic decreasein the percentage of the u s population in poverty during the 1960s the of cialu s census bureau gures show the poverty rate dropping from 22 4 percent ofthe population in 1959 to 12 6 percent in 1970 with a further decrease to11 1 percent in 1973 the trend since 1973 is not as clear the of cial poverty raterose somewhat during the latter part of the 1970s and then sharply increased dur ing the recession of the early 1980s reaching 15 2 percent in 1983 it then graduallydeclined hitting 12 8 percent in 1989 increased to 15 1 percent in 1993 and thendropped to 13 8 percent in 1995 according to the of cial rate even at the peakof the economic expansion of the late 1980s there was a higher percentage of thepopulation with income below the poverty line than there was 20 years earlier poverty does seem to have gotten worse this conclusion is controversial however because the way in which poverty isbest measured is controversial the of cial poverty scale has been criticized alonga number of dimensions one point of contention is whether people should bede ned as being poor when they are part of a family with

testing uncertainty s effect in real options with multiple capital goods the irreversible investment theory with heterogeneous capital predicts a negative relationship between uncertainty and the investment extensive margin we empirically explore this prediction using plant level data for investment across multiple fixed assets and employ a discrete ordered choice model our results indicate that uncertainty even after controlling for financial constraints induces a negative effect on the extensive margin thereby decreasing the likelihood of investment triggering in more types of capital this effect takes the form of both a higher probability of investment inactivity but also a lower probability of investment triggering in a higher number of capital types

life cycle expenditure allocations and the consumption costs of children abstract in this paper we assess whether it is changing needs or intertemporal substitution that dominate household expenditure responses to the presence of children over the life cycle we construct lifetime expenditure paths for households with different demographic profiles and consider the shape of these paths and some possible implications for welfare measures simulated expenditure paths based on consistent single period and multi period models indicate that it is indeed changing needs that dominate such paths in periods when children are present in the household however allowing for intertemporal substitution is still shown to be important since it can introduce new information relevant to the calculation of household welfare

how serious is the neglect of intrahousehold inequality in this report the authors develop a framework for assessing the consequences of ignoring intrahousehold inequality in the measurement and analysis of poverty and inequality they apply this framework to data for the philippines and conclude that 1 the result of neglecting intrahousehold inequality will probably be considerable understatement of the levels of poverty and inequality with the philippine data measured levels of inequality and poverty were off 30 percent as a result of ignoring intrahousehold variation and 2 patterns of inequality revealed by household level data are somewhat different from patterns revealed by individual level data but the differences seem not to be dramatic to confirm these results the exercise should be repeated with data from other countries

consumption technology and the intrafamily distribution of resources adult equivalence scales reexamined adult equivalence scales are supposed to measure differences in the needs of households of different demographic composition formally they purport to measure the change in the cost of attaining a certain welfare level when the family composition varies this paper shows that the definition and the measurement of these scales depend crucially on the concept of welfare used when welfare is the utility parents derive from their own consumption one has to assume separability of parents and children s consumption this assumption implies that the only way of imputing the intrafamily allocation of resources is by observing the consumption patterns of adult goods regardless of the definition used one cannot separate the factors reflecting home technology i e needs from those determining the intrafamily distribution rule i e wants out of consumption data

firms investment decisions in response to demand and price uncertainty we investigate the effect of demand and price uncertainty on firms planned and realized investment from a panel of manufacturing firms uncertainty measures are derived from firms own expectations about demand and prices and firm s sales we find that demand uncertainty at the time of planning depresses planned and subsequent realized investment firms do not revise their plans due to demand uncertainty at the time of spending suggesting that reducing demand uncertainty will only have lagged effects on investment we do not find any effect of price uncertainty our results are consistent with the behaviour of monopolistic firms with irreversible capital

option value uncertainty and the investment decision the options based approach to studying irreversible investment under uncertainty emphasizes that the opportunity cost of investment includes the value of the option to wait that is extinguished when an investment is undertaken thus the investment decision is affected by the determinants of the value of this option we extend and generalize a standard model of irreversible investment by introducing a second fully reversible technology and also incorporate partial reversibility by allowing capital to be abandoned at a cost as in the existing literature we find that the threshold value of the underlying asset in our case demand at which investment takes place is increasing in the uncertainty of demand we also find that the value of the option and thus the threshold value of the option value multiple at which investment takes place may be either increasing or decreasing in the uncertainty of demand in addition we find that for the case in which capital is used to replace the reversible technology the threshold value of the option value multiple is insensitive to the degree of reversibility of capital

potential foreign competition in us manufacturing abstract trade barriers are falling and firms are competing in increasingly open international markets the data reveal considerable heterogeneity across industries in the intertemporal path of import shares against this backdrop we focus on an issue that is increasingly important for competition policy analysis potential foreign competition inadequate attention to this aspect could result in a biased picture of total competition leading to misguided antitrust decisions drawing on the conceptual framework outlined by landes and posner harvard law review 94 1981 937 we measure potential foreign competition by the intertemporal response of industry import share to industry specific and aggregate economic factors and our estimates indicate wide variation across industries in this dimension a particularly striking finding is that highly concentrated industries which are more likely to be subject to antitrust scrutiny have a greater degree of potential foreign competition than industries with low concentration even though the extent of actual foreign competition is similar across these groups of industries

household equivalence scales and welfare comparisons abstract the ratio of cost functions of different households facing the same prices and attaining the same utility level is a true cost of demographic characteristics index this index is independent of a base level of income or utility ib if and only if it equals a ratio of household equivalence scales that are themselves ib applied cost index and equivalence scales specifications are usually ib this paper describes the general restrictions on cost functions and social welfare functions required for ib scales and for their use in welfare analysis

investment in greek manufacturing under irreversibility and uncertainty the message in used capital expenditures this article contributes to the existing literature by showing that uncertainty produces a nonuniform impact to the extent that different types of capital goods exhibit heterogeneous irreversibility which we define as asset specific irreversibility hence asset specific irreversibility is responsible for asymmetries in responses across types of capital goods to uncertainty we also show that for a given type of capital good uncertainty produces a variety of responses across sectors which we define sector specific irreversibility in other words sectoral differences in terms of the ability to substitute a given type of capital with labour introduce a second order effect of uncertainty on investment

tax uncertainty and investment a cross country empirical examination i introduction spanning a period of nearly 100 years of economic research a substantial body of literature has developed with the goal of explaining the behavior of investment over time 1 although many of these studies have considered the implications of tax policy for investment in an uncertain world most have also implicitly assumed that the tax policy itself does not contribute to the uncertainty the problem is that tax policy can be very uncertain in many cases 2 and to date we know little about the consequences especially from an empirical standpoint more generally empirical evaluations of uncertainty and investment are very limited compared with the development of theoretical analyses calcagnini and saltari 2000 and the case of tax uncertainty is no exception this article sets out to fill part of the intellectual void by empirically investigating the impact of volatility in effective tax rates on investment in a cross section of countries namely the 15 countries of the european union eu the united states and japan in doing so i first estimate tax rate volatility using an arch specification with data on effective capital tax rates i then provide panel regression results using the system generalized method of moments gmm sys estimator of arellano and bover 1995 see also blundell and bond 1998 which suggest that the volatility of effective tax rates on capital have a significant negative impact on investment per worker in these countries the remainder of the article proceeds as follows section ii briefly reviews the existing literature on tax policy uncertainty and investment as well as existing empirical studies of uncertainty in general and investment section iii develops the empirical model i employ to estimate the relationship between tax volatility and investment section iv then presents an analysis of effective tax rates in the eu countries the united states and japan followed by a discussion of the data and econometric issues in section v and an examination of the effects of tax rate volatility on investment in section vi section vii provides concluding remarks ii theoretical foundations tax policy uncertainty and investment although most of the voluminous literature on tax policy and investment under uncertainty ignores observed randomness in tax policy a recent set of literature has begun to explore these issues in some detail mostly through simulation 3 the basic premise underlying these studies is that because output price uncertainty tends to retard investment pindyck 1988 4 tax uncertainty might be expected to harm investment as well hassett and metcalf 1999 further credence to a negative relationship between tax uncertainty and investment is given by the business community s mantra that they cannot make plans if they don t have confidence in the tax structure bizer and judd 1989 223 these simulation studies however demonstrate that the impact of tax uncertainty depends crucially on the source and nature of the uncertainty contrary perhaps to conventional wisdom in some cases increased uncertainty can be shown to have positive effects on investment growth or welfare bizer and judd 1989 simulate the economic effects of introducing random tax policy in a dynamic general equilibrium model they find that if random tax rates or credits are serially correlated the target capital stock falls when taxes are high and rises when taxes are low their more interesting case considers independently and identically distributed random tax shocks in this case the authors find that randomness in investment tax credits generates large fluctuations in investment which have the effect of reducing both utility and production because both are concave functions as well revenue 5 they find that variance in future tax rates however is not important for long term investments and in fact raises nontrivial mounts of revenue at a welfare cost that is never more than the cost associated with raising an equivalent amount of revenue with a permanent increase in a deterministic tax rate

market concentration contestability and sunk costs this paper provides an exploratory assessment of the theory of contestability that is based on a diverse sample of industries and introduces a new important determinant of market concentration the results of the paper indicate that the variables determining the degree of contestability of markets are significant correlates of market concentration sunk costs account for a substantial portion of the sample variance of concentration even after technological factors are controlled for copyright 1990 by mit press

smart demand response in china challenges and drivers abstract smart demand response sdr induces change in electricity consumption by end users in response to price signals or incentives via smart infrastructures in china sdr programs are instrumental in peak shaving renewables integration emissions reduction and grid reliability improvement previous literature has not captured the effects of the latest development of electricity market reform on sdr our work is distinguished from prior work by a comprehensively identifying china specific sdr challenges by contrasting these with international experience b identifying effective drivers to overcome new market challenges and c recommending policies and providing insights into china s future sdr development our paper identifies three major challenges for sdr development and adoption in china namely financial and market consumer and infrastructural challenges in parallel we identify drivers to overcome these challenges including electricity market reform introduction of new market entrants and development of decentralized electricity systems finally we put forth china specific policy recommendations including continuous market reform performance based regulations for national utilities a level playing field for new market entrants and investments on consumer based technologies these measures aim to create equitable compensations to sdr align the interests of utilities with sdr initiatives provide incentives for consumer outreach and improve the responsiveness of consumers to sdr signals

industry characteristics and financial risk contagion this article proposes a new measure of tail risk spillover the conditional coexceedance ccx defined as the number of joint occurrences of extreme negative returns in an industry conditional on an extreme negative return in the financial sector the empirical application provides evidence of significant volatility and tail risk spillovers from the financial sector to many real sectors in the u s economy from 2001 to 2011 these spillovers increase in crisis periods the ccx in a given sector is positively related to its amount of debt financing and negatively related to its valuation and investment therefore real economy sectors which require relatively high debt financing and whose value and investment activity are relatively lower are prime candidates for stock price volatility and depreciation in the wake of a financial sector crisis evidence also suggests that the higher the industry s degree of competition the stronger the tail risk spillover from the financial sector

household equivalence scales theory versus policy researchers agree that household equivalence scales are intended to measure the variation in income needed to bring households of different composition to the same welfare level researchers do not agree however about how the term household welfare is to be defined this article traces the historical and philosophical development of three distinct definitions when the conceptual bases of several popular methods for the estimation of equivalence scales are explored it becomes clear that advances in theoretical rigor have not always worked to bring the literature closer to answering questions of policy concern

investment and conditional uncertainty the role of market power irreversibility and returns to scale abstract market power irreversibility and returns to scale decisively determine how uncertainty affects investment we empirically show that this relationship is positive when deviations from the neoclassical paradigm are absent as frictions are introduced the positive sign gradually dies out and turns negative

intra household resource allocation an inferential approach if household income is pooled and then allocated to maximize welfare then income under the control of mothers and fathers should have the same impact on demand with survey data on family health and nutrition in brazil the equality of parental income effects is rejected unearned income in the hands of a mother has a bigger effect on her family s health than income under the control of a father for child survival probabilities the effect is almost twenty times bigger the common preference or neoclassical model of the household is rejected if unearned income is measured with error and income is pooled then the ratio of maternal to paternal income effects should be the same equality of the ratios cannot be rejected there is also evidence for gender preference mothers prefer to devote resources to improving the nutritional status of their daughters fathers to sons

working capital and fixed investment new evidence on financing constraints this article presents new tests for finance constraints on investment by emphasizing the often neglected role of working capital as both a use and a source of funds the coefficient of endogenous working capital investment is negative in a fixed investment regression as expected if working capital competes with fixed investment for a limited pool of finance this finding addresses a criticism of previous research on finance constraints that cash flows may simply proxy shifts in investment demand in addition previous studies may have underestimated the impact of finance constraints on growth and investment because firms smooth fixed investment in the short run with working capital

investment under regime uncertainty impact of competition and preemption abstract in this study we analyze the investment timing problem and introduce a model of two firms competing for investment preemption each of which knows in advance the time at which the economic condition that will have an impact on the investment changes we qualitatively show how two firms strategically optimize their investment timing taking into account competition and preemption

household economies of scale in consumption theory and evidence household economies of scale arising from the existence of househo ld public goods increasing returns in household production and or bulk discounts are incorporated into a utility theoretic model of household demands individuals are assumed to be identical and symmetrically treated within households economies of scale parameters for five goods are estimated using the quadratic expenditu re system and data from the u s consumer expenditure survey on expenditures by all adult households results suggest the existence o f significant economies of scale in the consumption of all of the included goods with economies being especially pronounced in the consumption of shelter copyright 1988 by the econometric society

volatility of sales expectation errors and inventory investment firm level evidence abstract this paper tests whether demand uncertainty which is measured by the volatility of sales affects inventory investment based on the accelerator buffer stock inventory model using a panel of dutch listed firms in the period 1984 1996 we find that the estimated coefficient of the speed parameter of adjusting inventories increases vastly when the volatility of sales is used as the proxy for unexpected sales in the stock adjustment equation dutch firms on average overstate future sales leading firms to accumulate inventories partially due to the concern of avoiding stock out in case of highly unexpected demand

input choices under price uncertainty theory shows that depending on risk preferences and technological parameters price uncertainty may alter firms choice of capital intensity this paper presents an empirical analysis of the effect of price uncertainty on firms choices of capital and labor stocks empirical results from a cross section of manufacturing industries as well as within industries over time show that greater price uncertainty increases an industry s capital labor ratio it appears that risk aversion does not dominate firms decision making these empirical findings have implications for the analysis of factor demand and productivity and capacity utilization rates

what do we know about investment under uncertainty recent theoretical developments relating to investment under uncertainty have highlighted the importance of irreversibility for the timing of investment expenditures and their expected returns this has subsequently stimulated a growing empirical literature which examines uncertainty and threshold effects on investment behaviour this paper presents a review of this literature a variety of methods have been used to investigate the empirical implication of irreversibility in investment the majority focusing on the relationship between investment flows and proxy measures of uncertainty a general conclusion is that increased uncertainty at both aggregate and disaggregate levels leads to lower investment rates this suggests that there is an irreversibility effect under which greater uncertainty raises the value of the call option to delay a commitment to investment this effect appears to dominate any positive impact on investment arising from the fact that greater uncertability under certain circumstances increases the marginal profitability of capital the methods used raise a number of issues which call into question the reliability of the findings and these are addressed in the paper however if such irreversibility effects are present then their omission from traditional investment models casts doubt on the efficacy of such specifications jel classification d81 d92 e22

aggregate consumer behavior and household equivalence scales this article presents estimates of household equivalence scales broken down by demographic characteristics of u s households separate estimates are given by family size age of head region race and urban versus rural residence commodity specific scales are presented for five separate commodity groups energy food consumer goods capital services and other services the estimates are obtained from an econometric model of aggregate consumer behavior the parameters of this model are estimated by combining aggregate time series and individual cross section data

investment and competition this paper examines how industry structure affects corporate investment patterns real options theory shows that deferring irreversible investment in the face of uncertainty is valuable theory also shows that the value of waiting to invest falls if investment opportunities are contestable consistent with these theories we find that firms in monopolistic industries exhibit lower investment q sensitivity and are slower to invest than firms in competitive industries however we find that investment q sensitivity and investment speed are highest in oligopolistic industries suggesting that the value of investing strategically can outweigh the value of waiting indeed oligopolistic industries experience less entry and more exit than other industries

the response of firms leverage to risk evidence from uk public versus nonpublic manufacturing firms this article empirically investigates the effects of macroeconomic and firm specific risk on firms leverage the analysis is carried out for a large panel of public and nonpublic uk manufacturing firms over the period 1999 2008 our investigation provides evidence that uk manufacturing firms use less short term debt during periods of high risk however the leverage of nonpublic manufacturing firms is more sensitive to firm specific risk in comparison to their public counterparts while macroeconomic risk affects both types of firms similarly our investigation also shows that firms with high liquid assets reduce their leverage more less during periods of heightened firm specific macroeconomic risk jel c23 g32