Investment Dynamics with Information Costs

Journal of Money, Credit and Banking, 2014, vol. 46, issue 8, 1627-1656

Abstract: Investment in physical capital at the microlevel is infrequent and large, or lumpy. The most common explanation for this is that firms face nonconvex physical adjustment costs. The model developed in this paper shows that information costs make investment lumpy at the microlevel, even in the absence of nonconvex adjustment costs. When collecting and processing information are costly, the firm optimally chooses to do it sporadically and to be inactive most of the time. This behavior results in infrequent and possibly large capital adjustments. The model fits plant‐level investment rate moments well, and it also matches some higher order moments of aggregate investment rates.

Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

Downloads: (external link)
https://doi.org/10.1111/jmcb.12161

Related works:
Working Paper: Investment dynamics with information costs (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:46:y:2014:i:8:p:1627-1656

Access Statistics for this article

Journal of Money, Credit and Banking is currently edited by Robert deYoung, Paul Evans, Pok-Sang Lam and Kenneth D. West

More articles in Journal of Money, Credit and Banking from Blackwell Publishing
Bibliographic data for series maintained by Wiley Content Delivery ().