Investment and Hysteresis
Bibliographic Data
| ID | 4028909 |
|---|---|
| Authors | Avinash Dixit (0000-0002-8929-7503, John J. F. Sherrerd '52 University Professor of Economics, Princeton University, Princeton, New Jersey., corresponding author) |
| Year | 1992 |
| Volume | 6 |
| Issue | 1 |
| Pages | 107-132 |
| Publication date | 1992-02-01 |
| Peer Reviewed | Yes |
| Open Access | Yes |
| Type | ARTICLE |
| Venue | The Journal of Economic Perspectives (JOURNAL) |
| Journal identifiers | ISSN: 0895-3309 • E-ISSN: 1944-7965 |
| Publisher | American Economic Association (PUBLISHER • US) |
| DOI | 10.1257/jep.6.1.107 |
| OpenAlex | W2040121361 |
| Language | EN |
| Citations received | 67 |
| References cited | 17 |
It seems that firms behave contrary to the standard economic theory of investment. We observe that firms do not invest as soon a price rises above long-run average cost; instead firms wait until price rises substantially above long-run average cost. On the downside, firms stay in business for lengthy periods while absorbing operating losses, and price can fall substantially below average variable cost without inducing disinvestment or exit. Recent developments in the theory of investment under uncertainty offer an interesting new explanation. The new approach builds on an interesting analogy between real investments and options in financial markets: In the timing of investment, waiting has positive value because time brings more information about the future prospects of a project. This new approach suggests that textbook pictures of the dynamics of a competitive industry need to be substantially redrawn. More generally, it says that a great deal of inertia is optimal when dynamic decisions are being made in an uncertain environment
Analogy · Disinvestment · Economics · Incentive · Investment Decisions · Microeconomics · Capital Investment and Risk Analysis · Climate Change Policy and Economics · Economic theories and models
Marriage and the value of waiting
A Simple Model of Hysteresis in Employment under Exchange Rate Uncertainty
Investissement, incertitude et irréversibilité. Quelques développements récents de la théorie de l'investissement
Applications of Social Capital in Educational Literature
Irreversible Investment and Strategic Interaction
Britain's Industrial Performance since 1960
Geology or Economics? Testing Models of Irreversible Investment Using North Sea Oil Data
Free Trade
Real Options
The energy-efficiency gap What does it mean?
Carbon Lock-In
Business and Social Networks in International Trade
A real-options analysis of climate change and international migration
Economic policy uncertainty and capital investment
The proximity‐concentration trade‐off with multi‐product firms
The option value of life
Applying real options theory to farmers’ afforestation decisions in Ireland
Proactive investments in switching-flexibility and the value of agility in international business
Labour market reforms and employment hysteresis
Do menu costs lead to hysteresis in aggregate output? The experiences of some agent-based simulations
How much did uncertainty shocks matter in the Great Depression
Hysteresis and persistent long-term unemployment
Mathematical modeling for improved greenhouse gas balances, agro‐ecosystems, and policy development
The Timing of Public Spending in Japan and the US
Real options in the forest
How real options and ecological resilience thinking can assist in environmental risk management
Uncertainty and the competitive decline of the British Motor Industry
In the dedicated pursuit of dedicated capital
Is there a self-enforcing monetary constitution
Does the market self-correct? Asymmetrical adjustment and the structure of economic error
Hysteresis in the Dynamics of Employment by Activity Sector
Aggregate demand, sunk costs and discontinuous adjustments in an amended new consensus model
The Neoclassical Theory of Aggregate Investment and its Criticisms
Overcapitalization and social norms of cooperation in a small-scale fishery
Real exchange rate and import substitution episodes
Political Investment Cycles in Democracies and Autocracies
Postwar Migration in Southern Europe, 1950–2000
Investment Under Uncertainty
Time-to-Build and Investment
Patent Protection, Market Uncertainty, and R&D Investment
Investment in Energy Efficiency
Irreversible Investments and Volatile Markets
The Macroeconomic Consequences of Discontinuous Adjustment
When to Leave a Monetary Union
Uncertainty as a Propagating Force in The Great Depression
Small Firm Investment and Financing Decisions
Management flexibility, price uncertainty and the adoption of carbon forestry
Bienvenido, Míster Marshall! La ayuda económica americana y la economía española en la década de 1950
Elections, the curse of competence and credence policies
The Impact of Rent Control on Rents in the Free Sector
Β-convergence and the Cyclical Dynamics of UK Regional House Prices
The Convergence of Regional House Prices in the UK
Investment and Uncertainty
Industry Concentration and Welfare
Neutrality and Efficiency of Petroleum Revenue Tax
Antitrust and Business Activity
Schumpeter, The Tax-Like Effect and The Welfare Cost of Interest
Investment decision-making and industrial performance
Multilevel social spaces
The Birth, Death, and Persistence of Firms
Party determinants of FDI
Alliances, Imperfect Markets, and Major-Power Trade
The Internal and External Face of New Labour's Political Economy
An Interpretation of Recent Research on Exchange Rate Target Zones
Global Environmental Risks
Big push or big grab? Railways, government activism, and export growth inLatinAmerica, 1865-1913
No End to the Consensus in Macroeconomic Theory? A Methodological Inquiry
The Value of Waiting to Invest
Irreversibility, Uncertainty, and Cyclical Investment
Small Menu Costs and Large Business Cycles
Firing Costs and Labour Demand
Theory of Rational Option Pricing
An Economic Theory of Suicide
Irreversible Investment with Price Ceilings
Entry and Exit Decisions under Uncertainty
Exchange-Rate Instability
The Role of Investment in Entry-Deterrence
An Interpretation of Recent Research on Exchange Rate Target Zones
| Unique citing works | 67 |
|---|---|
| Citations per year | 1,97 |
| Citation span | 1992 - 2026 (35) |
| Citation velocity | current |
| Highly cited | No |
| Citation types | Neutral: 59 |