NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Uncertainty, Investment, and Industry Evolution

Ricardo J. Caballero, Robert S. Pindyck

NBER Working Paper No. 4160 (Also Reprint No. r2075)
Issued in September 1992
NBER Program(s):   EFG

We study the effects of aggregate and idiosyncratic uncertainty on the entry of firms, total investment, and prices in a competitive industry with irreversible investment. We first use standard dynamic programming methods to determine firms' entry decisions, and we describe the resulting industry equilibrium and its characteristics, emphasizing the effects of different sources of uncertainty. We then show how the conditional distribution of prices can be used as an alternative means of determining and understanding the behavior of firms and the resulting industry equilibrium. Finally, we use four-digit U.S. manufacturing data to examine some implications of the model.

download in pdf format
   (248 K)

email paper

This paper is available as PDF (248 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w4160

Published: International Economic Review, August 1996, vol. 37, no. 3, pp. 641-662.

Users who downloaded this paper also downloaded these:
Pindyck w3307 Irreversibility, Uncertainty, and Investment
Abel and Eberly w4296 A Unified Model of Investment Under Uncertainty
Pindyck and Solimano Economic Instability and Aggregate Investment
Bachmann, Elstner, and Sims w16143 Uncertainty and Economic Activity: Evidence from Business Survey Data
Leahy and Whited w4986 The Effect of Uncertainty on Investment: Some Stylized Facts
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us