New Issues in the Theory of Investment

The investment good market, together with the consumer good market, the money market and the labour market, are indeed the most extensively studied markets. The exhaustive survey of investment theory by Eisner and Strotz, already quoted four hundred references in 1963, although this work advocating for adjustment costs, was in fact only carried out at the very beginning of modern investment theory! This chapter gives an introduction of the extensive field and is an attempt to present some key ideas of investment theory. 1) We show that modern investment theory is the integration of many traditional approaches. The content of the chapter is set as follows. Section 2 presents an illustrative model of investment theory. Section 3, using this model, describes the investment decision of the firm. Sections 4 to 10 each present a "classical" investment hypothesis within the framework of the model. Section 11 concludes. For convenience, the key to the symbols used is given in Table 1. 2. The Model of the Firm Investment theory was born with the claim of Keynes (1936) that besides the capital demand (demand for a stock of capital at a point in time), an investment demand (demand for the increment of the capital stock in a period 1) Recent surveys are: Abel (1988), Coen and Eisner (1987) Artus and Muet (1984). The book on investment theory by Nickell (1978) is outstanding.

Texte du rabat

This monograph starts with a survey of the One-Relative-Price (Q value) Theory of Investment and then explores therichness of the Many-Relative-Price Theory of Investment:Firstly a tractable model of modernization investment ispresented which recognizes that in modern economies morethan half of the gross investments consists of replacementinvestments, and that the main motive for replacementinvestments is to modernize the capital stock. This modelpredicts that an activation of investments by fiscal policyis only possible at the cost of causing an ageing of capitalstock. Secondly a model is presented in which initial over-or underinvestments cause further over- or underinvestmentsand thus have a persistent effect on the structureof thecapital stock. This model explains why in centrally plannedeconomies a rapid and persistently extensive growth waspossibleand had to be followed by stagnation.

Contenu
Investment Theory: An Integrative Framework.- 1. The Main Problem of Investment Theory.- 2. The Main Approaches to Investment Theory.- 3. An Integrative Framework.- Ageing of Capital Stock and Fiscal Policy.- 1. Description of the Model.- 2. Predictions of the Model.- Persistence of Extensive Growth.- 1. Description of the Model.- 2. Predictions of the Model.- I Investment Theory: An Integrative Framework.- 1. Introduction.- 2. The Model of the Firm.- 3. The Investment Decision of the Firm.- 4. Tobin's Q Investment Demand.- 5. Treadway's Optimal Accelerator.- 6. Lucas's Optimal Investment with Rational Expectations.- 7. Keynes's Marginal Efficiency of Capital.- 8. Jorgenson's Neoclassical Investment Demand.- 9. Kydland and Prescott's Time to Build.- 10. Arrow's Irreversibility of Investment.- 11. Conclusions.- II Ageing of the Capital Stock: A Long Run Side-Effect of Expansive Fiscal Policy.- 1. Introduction.- 2. The Model of the Firm.- 3. Necessary and Sufficient Conditions.- 4. Predictions of the Model.- 5. Fiscal Policy and Age of the Capital Stock.- 6. Conclusions.- III Persistence of Extensive Growth: A Growth Model of the Soviet Economy.- 1. Introduction.- 2. Model of the Central Planning Economy.- 3. Necessary Conditions.- 4. The Growth-Process.- 5. The Growth Process of the Soviet Union.- 6. Conclusions.- References.- Appendices.- Appendices to Chapter I.- Appendix 1.- Appendix 2.- Appendix 3.- Appendix 4.- Appendix 5.- Appendix 6.- Appendices to Chapter II.- Appendix 1.- Appendix 2.- Appendix 3.- Appendix 4.- Appendix 5.- Appendices to Chapter III.- Appendix 1.- Appendix 2.