Limited Attention, Interaction and the Growth of a Firm

Abstract: A person cannot make many decisions at a time, but an organization needs millions of interrelated decisions. We incorporate this idea into investment theory and examine its influence on a firm's growth rate. Two assumptions are emphasized: an agent cannot optimize more than one input at a time, and there is interaction among inputs. Each investment is lumpy, but adjustment is gradual. Without an adjustment cost function and exogenous shocks, we derive the growth rate of a firm. The derived growth rate is independent of firm size and imperfectly correlated with Tobin's Q.

Keywords: Limited Attention; Complementarity and Substitutability; Investment; Tobin's Q. (search for similar items in EconPapers)
JEL-codes: E (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: Written 2005-06-05
Note: Type of Document - pdf; pages: 47
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