An Intertemporal Model of Industrial Exit

Murray Frank ()

The Quarterly Journal of Economics, 1988, vol. 103, issue 2, pages 333-44

Abstract: A finite horizon model of industrial exit is developed. After an ini tial lag, most exits are by young firms. The duration of the lag is p ositively related to sunk entry costs, but not due to the fallacy of sunk costs. The conception of entry differs from previous research; a s a result, not all entrants are identical and firm size affects the rate of learning. On average, larger new firms last longer. Entrepren eurs in declining firms act more lazily as the firm declines. A numbe r of empirical observations about declining firms are organized by th e model. Copyright 1988, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Date: 1988
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