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

Jeffrey Bernstein and Theofanis Mamuneas ()

No 13269, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: D24 L96 (search for similar items in EconPapers)
Date: 2007-07
New Economics Papers: this item is included in nep-eff
Note: PR IO EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Published as Jeffrey I. Bernstein & Theofanis P. Mamuneas, 2007. "Irreversible Investment, Capital Costs and Productivity Growth: Implications for Telecommunications," Review of Network Economics, Concept Economics, vol. 6(3), pages 299-320, September.

Downloads: (external link)
http://www.nber.org/papers/w13269.pdf (application/pdf)

Related works:
Journal Article: Irreversible Investment, Capital Costs and Productivity Growth: Implications for Telecommunications (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:13269

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w13269

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().