Aggregate implications of lumpy investment under heterogeneity and uncertainty: a model of collective behavior

Yoshiyuki Arata (), Yosuke Kimura and Hiroki Murakami ()
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Yoshiyuki Arata: Research Institute of Economy, Trade and Industry

Evolutionary and Institutional Economics Review, 2017, vol. 14, issue 2, No 1, 333 pages

Abstract: Abstract Recent studies highlight the effect of uncertainty on investment decisions, i.e., the “wait and see” effect. In the existing literature, however, uncertainty is viewed as just an exogenous variable. In this paper, uncertainty is not exogenously given but endogenously determined, generating a feedback-loop between micro-behaviors and the macroeconomic environment. In particular, we assume that when uncertainty is high, expectations and behaviors of micro-agents are more heterogeneous. Under these settings, we show that on the one hand heterogeneity contributes to the stability at the macroscopic level, but on the other hand this macro-stability is suddenly lost when investors are sensitive to uncertainty. Namely, investors suddenly and simultaneously “wait and see”.

Keywords: Lumpy investment; Pseudo-compound Poisson process; Uncertainty; Collective behavior (search for similar items in EconPapers)
JEL-codes: D21 E22 E32 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s40844-017-0074-5

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