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Investment in r&d, costs of adjustment and expectations

Schankerman, Mark and Nadiri, M. Ishaq (1982) Investment in r&d, costs of adjustment and expectations. 931. National Bureau of Economic Research, Cambridge, MA., USA.

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Abstract

his paper proposes a framework which integrates convex costs of adjustment and expectations formation in the determination of investment decisions in R&D at the firm level. The model is based on cost minimization subject to the firm's expectations of the stream of output and the price of R&D, and results in equations for actual and multiple-span planned investment in R&D and for the realization error as functions of these expectations. The model accommodates alternative mechanisms of expectations formation and provides a methodology for testing these hypotheses empirically. We derive estimable equations and testable parameter restrictions for the rational, adaptive and static expectations hypotheses. The empirical results using pooled firm data strongly reject the rational and static expectations hypotheses and generally support adaptive expectations.

Item Type: Monograph (Working Paper)
Official URL: http://www.nber.org
Additional Information: © 1982 M.Ishaq Nadiri and Mark Schankerman
Library of Congress subject classification: H Social Sciences > HB Economic Theory
Sets: Collections > Economists Online
Departments > Economics
Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: 931
Date Deposited: 28 May 2008 09:48
URL: http://eprints.lse.ac.uk/5110/

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