Economics Department

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TITLE:
Zeroes and Lumps in Investment: Empirical Evidence on Irreversibilities and Non-Convexities

AUTHOR(S):
Oivind Anti Nilsen, Norwegian Research Centre in Organization and Management
Fabio Schiantarelli, Boston College

DOCUMENT TYPE: Article

ABSTRACT:
The objective of this paper is to identify and discuss the main stylized facts about the type and degree of non-smoothness of capital adjustment. Using Norwegian micro data, we investigate the frequency of periods of zero investment as well as the lumpiness of investment both at the plant and firm level, and at different level of aggregation across capital goods. We also discuss how the importance of zero investment episodes and lumpiness varies between small and large plants or firms. Finally we estimate a discrete hazard model, controlling for unobserved heterogeneity, to determine the probability of having an episode of high investment, conditional on the length of the interval from the last high investment episode, and discuss the implications of the empirical evidence for the shape of the adjustment cost function.