Alternative Investment Models for Firms in the Electric Utilities Industry

Stephen C. Peck

Bell Journal of Economics, 1974, vol. 5, issue 2, 420-458

Abstract: In this paper an analysis is made of the investments in turbogenerator sets made by a sample of 15 firms in the electric utilities industry for the period 1948 through 1969. Two models of firm investment are proposed and tested. The first is directly related to an earlier work of Chenery, in which he pointed out that the existence of economies of scale would lead to lumpy investments. This model is consistent with the individual firm data. The second model is the familiar distributed lag model which predicts that investment will take place smoothly. This model is inconsistent with the individual firm data. In addition, predictions of the aggregate investment of the 15 firms are made with the lumpy model and these fit about as well as a distributed lag model estimated with the aggregate data. Bayesian methods of estimation and inference are used throughout to arrive at these conclusions.

Date: 1974
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