TY  - JOUR
AU  - Shleifer,Andrei
AU  - Vishny,Robert W.
TI  - The Efficiency of Investment in the Presence of Aggregate Demand Spillovers
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2297
PY  - 1987
Y2  - June 1987
UR  - http://www.nber.org/papers/w2297
L1  - http://www.nber.org/papers/w2297.pdf
N1  - Author contact info:
Andrei Shleifer
Department of Economics
Harvard University
Littauer Center M-9
Cambridge, MA 02138
Tel: 617/495-5046
Fax: 617/496-1708
E-Mail: ashleifer@harvard.edu

Robert W. Vishny
Booth School of Business
The University of Chicago
5807 South Woodlawn Avenue
Chicago, IL  60637
Tel: 773/702-2522
Fax: 773/834-1920
E-Mail: Rvishny@gmail.com
AB  - In the presence of aggregate demand spillovers, an imperfectly competitive firm's profit is positively related to aggregate income, which in turn rises with profits of all firms in the economy. This pecuniary externality makes a dollar of a firm's profit raise aggregate income by more than a dollar, since other firms' profits also rise, and in this way gives rise to a "multiplier." Since such "multipliers" are ignored by firms making investment decisions, privately optimal investment choices under uncertainty will not in general be socially optimal. Under reasonable conditions, private investment is too low.
ER  -