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Investment and Time to Plan and Build: A Comparison of Structures vs. Equipment in A Panel of Italian Firms

Author

Listed:
  • Alessandra Del Boca
  • Marzio Galeotti
  • Charles P. Himmelberg
  • Paola Rota
Abstract
"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) (c) 2008 by the European Economic Association.

Suggested Citation

  • Alessandra Del Boca & Marzio Galeotti & Charles P. Himmelberg & Paola Rota, 2008. "Investment and Time to Plan and Build: A Comparison of Structures vs. Equipment in A Panel of Italian Firms," Journal of the European Economic Association, MIT Press, vol. 6(4), pages 864-889, June.
    • Handle: RePEc:tpr:jeurec:v:6:y:2008:i:4:p:864-889
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    Citations

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    Cited by:

    1. Dosi, Giovanni & Lamperti, Francesco & Mazzucato, Mariana & Napoletano, Mauro & Roventini, Andrea, 2023. "Mission-oriented policies and the “Entrepreneurial State” at work: An agent-based exploration," Journal of Economic Dynamics and Control, Elsevier, vol. 151(C).
    2. Tsoukalas, John D., 2011. "Time to build capital: Revisiting investment-cash-flow sensitivities," Journal of Economic Dynamics and Control, Elsevier, vol. 35(7), pages 1000-1016, July.
    3. Mauro Bambi & Cristina Girolami & Salvatore Federico & Fausto Gozzi, 2017. "Generically distributed investments on flexible projects and endogenous growth," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 63(2), pages 521-558, February.
    4. Mauro Napoletano & Giovanni Dosi & Giorgio Fagiolo & Andrea Roventini, 2012. "Wage Formation, Investment Behavior and Growth Regimes: An Agent-Based Analysis," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(5), pages 235-261.
    5. Giovanni Dosi & Giorgio Fagiolo & Mauro Napoletano & Andrea Roventini, 2012. "Economic policies with endogenous innovation and Keynesian demand management," Chapters, in: Robert M. Solow & Jean-Philippe Touffut (ed.), What’s Right with Macroeconomics?, chapter 5, pages 110-148, Edward Elgar Publishing.
    6. repec:hal:spmain:info:hdl:2441/401t6job098n79ch91o9giov9d is not listed on IDEAS
    7. Mattia Guerini & Francesco Lamperti & Mauro Napoletano & Andrea Roventini & Tania Treibich, 2022. "Unconventional monetary policies in an agent-based model with mark-to-market standards," Review of Evolutionary Political Economy, Springer, vol. 3(1), pages 73-107, April.
    8. Genc, Talat S., 2017. "The impact of lead time on capital investments," Journal of Economic Dynamics and Control, Elsevier, vol. 82(C), pages 142-164.
    9. repec:spo:wpecon:info:hdl:2441/eu4vqp9ompqllr09j0h130d0n is not listed on IDEAS
    10. Millar, Jonathan N. & Oliner, Stephen D. & Sichel, Daniel E., 2016. "Time-to-plan lags for commercial construction projects," Regional Science and Urban Economics, Elsevier, vol. 59(C), pages 75-89.
    11. repec:spo:wpmain:info:hdl:2441/f4rshpf3v1umfa09l8sci08kj is not listed on IDEAS
    12. Lamperti, F. & Dosi, G. & Napoletano, M. & Roventini, A. & Sapio, A., 2018. "Faraway, So Close: Coupled Climate and Economic Dynamics in an Agent-based Integrated Assessment Model," Ecological Economics, Elsevier, vol. 150(C), pages 315-339.
    13. Marco Grazzi & Nadia Jacoby & Tania Treibich, 2013. "Dynamics of Investment and Firm Performance: Comparative Evidence from Manufacturing Industries," GREDEG Working Papers 2013-09, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    14. repec:spo:wpecon:info:hdl:2441/f4rshpf3v1umfa09l8sci08kj is not listed on IDEAS
    15. Dosi, Giovanni & Fagiolo, Giorgio & Roventini, Andrea, 2010. "Schumpeter meeting Keynes: A policy-friendly model of endogenous growth and business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 34(9), pages 1748-1767, September.
    16. Dosi, Giovanni & Fagiolo, Giorgio & Napoletano, Mauro & Roventini, Andrea, 2013. "Income distribution, credit and fiscal policies in an agent-based Keynesian model," Journal of Economic Dynamics and Control, Elsevier, vol. 37(8), pages 1598-1625.
    17. repec:spo:wpmain:info:hdl:2441/eu4vqp9ompqllr09j0h130d0n is not listed on IDEAS
    18. Mauro Bambi & Cristina Di Girolami & Salvatore Federico & Fausto Gozzi, 2014. "On the Consequences of Generically Distributed Investments on Flexible Projects in an Endogenous Growth Model," Discussion Papers 14/15, Department of Economics, University of York.
    19. repec:spo:wpmain:info:hdl:2441/401t6job098n79ch91o9giov9d is not listed on IDEAS
    20. Amundsen, Alexander, 2023. "Interaction effects in the adjustment cost function of firms," Journal of Economic Dynamics and Control, Elsevier, vol. 146(C).
    21. repec:hal:spmain:info:hdl:2441/eu4vqp9ompqllr09j0h130d0n is not listed on IDEAS
    22. repec:hal:wpspec:info:hdl:2441/f4rshpf3v1umfa09l8sci08kj is not listed on IDEAS
    23. repec:hal:wpspec:info:hdl:2441/eu4vqp9ompqllr09j0h130d0n is not listed on IDEAS
    24. Converse, Nathan, 2018. "Uncertainty, capital flows, and maturity mismatch," Journal of International Money and Finance, Elsevier, vol. 88(C), pages 260-275.
    25. repec:hal:spmain:info:hdl:2441/f4rshpf3v1umfa09l8sci08kj is not listed on IDEAS

    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models

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