Sponsor:
We acknowledge
research funding from Ministry of Education, Grants No. SEJ2006-05710/ECON and SEJ2006-04957/ECON, respectively. The second author also thanks funding form Comunidad de Madrid,
Grant No. CCG07-UAM/HUM-1918
Rights:
Atribución-NoComercial-SinDerivadas 3.0 España
Abstract:
We study the role of irreversibility and non convexities in firm investment decisions. For such purpose, we posit a dynamic structural investment model with irreversibility and nonconvex adjustment costs. We focus on the firm decision about whether to invest oWe study the role of irreversibility and non convexities in firm investment decisions. For such purpose, we posit a dynamic structural investment model with irreversibility and nonconvex adjustment costs. We focus on the firm decision about whether to invest or not, which is characterized by means of a discrete choice dynamic programming problem. The adjustment cost parameters behind the investment decision are estimated with a longitudinal sample of Spanish manufacturing firms between 1990 and 2002. For these firms, we confirm that inaction and investment episodes account for a significant fraction of them. As estimation procedure, we apply the Nested Pseudo-Likelihood (NPL) algorithm by Aguirregabiria and Mira (2002).[+][-]