Fixed Costs: The Demise of Marginal q / Ricardo J. Caballero, John V. Leahy.

Format:

Book

Author/Creator:

Caballero, Ricardo J.

Contributor:

National Bureau of Economic Research.

Leahy, John V.

Series:

Working Paper Series (National Bureau of Economic Research) no. w5508.

NBER working paper series no. w5508

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Fixed Costs

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1996.

Summary:

The standard version of q theory, in which investment is positively related to marginal q, breaks down in the presence of fixed costs of adjustment. With fixed costs, investment is a non-monotonic function of q. Therefore its inverse, which is the traditional investment function, does not exist. Depending upon auxiliary assumptions, the correlation between investment and marginal q can be either positive or negative. Given certain homogeneity assumptions, a version of the theory based on average q still holds, although under the same assumptions profits and sales perform as well as average q. More generally, q is no longer a sufficient statistic.

Notes:

Print version record

March 1996.