Irreversible investment, capital costs and productivity growth implications for telecommunications by Jeffrey Ian Bernstein

Cover of: Irreversible investment, capital costs and productivity growth | Jeffrey Ian Bernstein

Published by National Bureau of Economic Research in Cambridge, Mass .

Written in English

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Subjects:

  • Telecommunication -- Mathematical models

About the Edition

This paper develops a model incorporating costly disinvestment and estimates the associated commitment premium required to invest in telecommunications. Results indicate that the irreversibility premium raises the opportunity cost of capital by 70 percent. This implies an average annual hurdle rate of return of 14 percent over the period 1986-2002. Irreversibility creates a distinction between observed and adjusted TFP growth. Observed growth, which omits the premium, annually averaged 2.8 percent from 1986 to 2002. This rate exceeded the (premium) adjusted TFP growth by 0.7 percentage points, and therefore average annual observed productivity growth overestimated the corrected rate by 33 percent.

Edition Notes

Book details

StatementJeffrey I. Bernstein, Theofanis P. Mamuneas.
SeriesNBER working paper series -- no. 13269., Working paper series (National Bureau of Economic Research) -- working paper no. 13269.
ContributionsMamuneas, Theofanis P., National Bureau of Economic Research.
The Physical Object
Pagination21 p. ;
Number of Pages21
ID Numbers
Open LibraryOL17635150M
OCLC/WorldCa163923420

Download Irreversible investment, capital costs and productivity growth

Jeffrey I. Bernstein & Theofanis P. Mamuneas, "Irreversible Investment, Capital Costs and Productivity Growth: Implications for Telecommunications," Review of Network Economics, Concept Economics, vol.

6(3), pagesSeptember. citation courtesy ofCited by: 6. Irreversible Investment, Capital Costs and Productivity Growth: Implications for Telecommunications JEFFREY I.

Irreversible investment * Department of Economics, Florida International University, Miami THEOFANIS P. MAMUNEAS Department of Economics, University of Cyprus Abstract. Irreversible Investment, Capital Costs and Productivity Growth: Implications for Telecommunications Jeffrey I.

Bernstein and Theofanis P. Mamuneas NBER Working Paper No. July JEL No. D24,L96 ABSTRACT This paper develops a model incorporating costly disinvestment and estimates the associated commitment.

Get this from a library. Irreversible Investment, Capital Costs and Productivity Growth: Implications for Telecommunications.

[Jeffrey I Bernstein; Theofanis P Mamuneas] -- This paper develops a model incorporating costly disinvestment and estimates the associated commitment premium required to invest in telecommunications.

Results indicate that the irreversibility. Irreversible Investment, Capital Costs and Productivity Growth: Implications for Telecommunications NBER Working Paper No.

w 23 Pages Cited by: 6. Irreversible Investment, Capital Costs and Productivity Growth: Implications for Telecommunications Irreversible Investment, Capital Costs and Productivity Growth: Implications for Telecommunications Bernstein, Jeffrey I.; Mamuneas, Theofanis P.

This paper develops a model incorporating costly disinvestment and estimates the associated commitment.

Irreversible Investment, Capital Costs and Productivity Growth: Implications for Telecommunications Jeffrey I.

Bernstein and Theofanis P. Mamuneas NBER Working Paper No. Jeffrey I. Bernstein & Theofanis P. Mamuneas, "Irreversible Investment, Capital Costs and Productivity Growth: Implications for Telecommunications," NBER Working PapersNational Bureau of Economic Research, Inc.

Failing to do so would limit their chances of further growth. In this paper we try to identify the factors that explain the difference in investment growth among firms. We expect labour and capital productivity, firm size, cost of capital, marketing and logistics costs to play a significant role in explaining the above difference.

Irreversible Investment, Capital Costs and Productivity Growth: Implications for Telecommunications Review of Network Economics,6, (3), View citations (4) See also Working Paper () X-factor updating and total factor productivity growth: the case of.

Abstract. We examine the impact of learning about the unknown costs capital costs and productivity growth book investment on irreversible investment decisions, and show that the presence of learning increases the endogenous cost of adjustment and depresses investment.

We demonstrate convergence of the state of information and capital stock to the ergodic set. Get this from a library. Irreversible investment, capital costs and productivity growth: implications for telecommunications.

[Jeffrey Ian Bernstein; Theofanis P Mamuneas; National Bureau of Economic Research.] -- This paper develops a model incorporating costly disinvestment and estimates the associated commitment premium required to invest in telecommunications. Firm investment activity and firm characteristics, particularly the market-to-book ratio or q, are functions of the state of the economy and therefore contain information about the dynamic behavior of stock returns.

This paper develops a model of a produc-tion economy in which real investment is irreversible and subject to convex adjustment costs. Public infrastructure, input efficiency and productivity growth in the Canadian food processing industry Journal of Productivity Analysis,29, (1), View citations (4) Irreversible Investment, Capital Costs and Productivity Growth: Implications for Telecommunications Review of Network Economics,6, (3), View citations (3).

Irreversible Investment, Capital Costs and Productivity Growth: Implications for Telecommunications Jeffrey I. Bernstein, Theofanis P. Mamuneas NBER Working Paper No.

"Irreversible Investment, Capital Costs and Productivity Growth: Implications for Telecommunications," Review of Network Economics, De Gruyter, vol. 6(3), pagesSeptember. References listed on IDEAS. If the rm has a lot of capital, then the cost of net investment will be high relative to if the rm does not have much capital.

The idea here is that is the rm has to not run some of its machines while it installs new machines (i.e. it can’t produce as much).

The more machines its has, the more costly this is. Arrow, K.J. Optimal capital policy and irreversible investment. In Value, Capital, and Growth, ed. J.N. o: Aldine. Google Scholar. The threshold return that justifies an irreversible investment increases with uncertainty, or more precisely, with the probability mass in the lower tail of outcomes.

Irreversibility constrains the ability to redeploy capital in ‘bad’ states, so the agent is particularly sensitive to. Optimal Capital Policy the Cost of Capital and Myopic and Controllability. Uniqueness of the Internal Rate of Return with Variable.

The Social Discount Rate. Optimal Growth with Irreversible Investment in a Ramsey Model. Uncertainty and the Evaluation of Public Investment Decisions. Reply. Knowledge. Investment is often irreversible: once installed, capital has little or no value unless used in production.

This paper proposes, solves and characterizes a model of sequential irreversible investment by a firm facing uncertainty in technology, demand and price of capital.

exercised at the cost of purchasing the capital), and by installing capacity now, it closes those options. The optimal rule is to invest until the value of a marginal unit of capital is equal to its total cost -- the purchase and installation cost, plus the value of the option on the unit   The firm’s investments are irreversible, i.e., k t − 1 cannot be changed at date t if signal S t turns out to be low.

Subsequent to the firm’s public release of signal S t, the market for the firm’s shares opens and the current shareholders sell their stock to the investors of the next sequence of events at date t (i.e., at the end of period t − 1) is as depicted in.

cost of exercising the investment option. We show that for moderate amounts of uncertainty, the firm's optimal capacity is much smaller than it would be if investment were reversible, and a large fraction of the firm's value is due to the possibility of future growth.

We. The model does not have fixed operating costs, irreversible investment, asymmetric adjustment costs on capital, or fixed costs of investment.

Future average annual productivity growth is. Business investment has fallen for three quarters, the worst period since the financial crisis, which potentially paves the way for weak productivity growth in future. “The low cost of labour. Irreversible Investment, Capital Costs and Productivity Growth: Implications for Telecommunications Results indicate that the irreversibility premium raises the opportunity cost of capital by 70 percent.

This implies an average annual hurdle rate of return of 14 percent over the period over the period   The coexistence of firms with different productivity levels in equilibrium is the result of uncertainty about productivity before an irreversible entry decision is made.

to date there has been little empirical work on the effects of trade cost reductions on plant productivity growth. 5 In our where capital is the book value of machinery.

The investment behaviour of these firms strongly hinges on the cost of capital utilization: When this cost is high, it weighs negatively on the purchase and installation of new production.

subject to aggregate and –rm-speci–c productivity shocks. Through optimal capital invest-ment, these shocks generate endogenous cross-sectional variation in –rm characteristics such as market equity, book-to-market, investment and capital. Firms face adjustment costs and irreversibility in investment.

Optimal Capital Policy with Irreversible Investment By Kenneth J. Arrow It is Sir John Hicks’s Value and Capital which taught us clearly the formulation of capital theory as an optimization problem for the firm. As a result, these high productivity firms have low risk, and hence low expected stock returns in equilibrium, consistent with the findings in Tuzel and Imrohoroglu () (for physical investment.

Green productivity growth is used as the indicator to measure the performance of green growth, reflecting economic growth, energy consumption and pollution emissions.

Green productivity growth has been a more focus topic rather than total factor productivity (TFP) growth in recent studies (Shen et al., ; Cárdenas et al., ). The world went into the COVID crisis in the midst of a year-long productivity growth slowdown.

This column considers the channels through which the crisis might shift the growth rates of productivity and output. Globalisation, labour mobility and small firms may all fall victim to the crisis if the world does not succeed in reopening borders, refraining from trade and.

Critics of employment protection contend that it stifles corporate investment and growth. 1 Empirical work, however, does not find a consistent relation between employment protection and capital expenditures (Autor, Kerr, and Kugler ; Calcagnini, Giombini, and Saltari ; Calcagnini, Ferrando, and Giombini ).Moreover, even if greater employment protection lowers capital.

Downloadable (with restrictions). We show that an increase in aggregate uncertainty—measured by stock market volatility—reduces productivity growth more in industries that depend heavily on external finance.

The mechanism at play is that during periods of high uncertainty, firms that are credit constrained switch the composition of investment by reducing productivity-enhancing investment.

investmen t is irreversible ex post (i.e. capital costs are sunk), the investment planning process should involve both forward-looking expectations as well as a measure of risk aversion in order. Increase in capital goods has an opportunity cost of fewer consumer goods, but in long-term can enable economic growth.

Similarly, a decline in investment can enable more consumer goods in the short-term but can lead to lower rates of economic growth. PPF and recession. Nadiri and Mamuneas: w The Effects of Public Infrastructure and R&D Capital on the Cost Structure and Performance of U.S.

Manufacturing Industries: Bernstein and Mamuneas: w Irreversible Investment, Capital Costs and Productivity Growth: Implications for Telecommunications: Bernstein and Nadiri: w Production, Financial Structure and Productivity Growth in U.S. Manufacturing. Growth in capital quality and "capital-labor" substitution constitute the contribution of investment in tangible assets to productivity growth.

This amounts to almost half (47 percent) of productivity growth and is by far the most important source of increases in productivity. ASSET PRICING, GROWTH, AND THE BUSINESS CYCLE WITH IRREVERSIBLE INVESTMENT Miquel Faig* University of Toronto St. George Street, Suite Toronto, Canada M5S 3G6 Phone: () E-mail: [email protected] Abstract This paper advances a simple model that emphasizes the diversity of capital types, some of.The enhanced access of developing countries to the international financial market since the seventies has been characterized by boom-bust cycles of unfettered external borrowing followed by abrupt financial crises.

The first chapter analyzes the macroeconomic effects of volatile capital flows to a developing country. The analysis shows that investment, consumption, and the current account.wise sunk costs.' The irreversibility of investment has been neglected since the work of Kenneth Arrow (), despite its implications for spending decisions, capacity choice, and the value of the firm.

When investment is irreversible and future demand or cost conditions are uncer-tain, an investment expenditure involves the.

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