The American Economic Review September 1968 [antikvár]

The American Economic Review Volume LVIII SEPTEMBER 1968 Number 4 A COMPARISON OF ALTERNATIVE THEORIES OF CORPORATE INVESTMENT BEHAVIOR By Dale W. Jorgenson and Calvin D. Siebert* The purpose of this paper is to compare alternative theories of investment behavior with regard to their ability to explain the investment activity of corporations. The theories we consider have already undergone substantial empirical testing and all of them deserve careful consideration as possible explanations of investment behavior. Unfortunately, the evidence already available is not sufficient to provide an adequate comparison of the alternative theories. Given a correct specification of the lag structure underlying the investment process, time series data for industry aggregates do not provide sharp discrimination among alternative explanations of investment behavior.1 Studies of cross section data on the investment activity of individual firms exhibit little stability over time so that any comparisons based on observations for corporations must first provide a satisfactory explanation of the observations for individual firms over time.2 In this study we concentrate on time series data for a small but representative sample of firms selected from the Fortune Directory [14] of the 500 largest U.S. industrial corporations for 1962. For each individual firm we determine an appropriate specification of the lag between changes in demand for capital and investment expenditures under each of five alternative theories of the demand for capital. We find that the results enable us to discriminate quite sharply among alternative theories of investment. The point of departure for this study is the flexible accelerator model of investment behavior originated by Chenery [2] and Koyck [29J. In this model attention is focused on the time pattern of investment behavior. The firm is taken to have a desired level of capital, determined by long-run considerations. The precise specification of the desired level of capital has been the subject of a wide variety of alternative * Dale W. Jorgenson is professor of economics at the University of California, Berkeley; Calvin D. Siebert is associate professor of economics at the University of Iowa. Support for this research was provided by the National Science Foundation. 1 See, for example, the results of Griliches and Wallace [16], 2 This point has been emphasized by Kuh [30, esp. Ch. 5, pp. 116-57],