Tobin's Q, non-constant returns to scale, and imperfectly competitive product markets

Bob Chirinko and Steven Fazzari

No 1988031, Discussion Papers (REL - Recherches Economiques de Louvain) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: This study explores the impact of non-constant returns to scale and imperfectly competitive product markets on the empirical performance of the q-model of investment. We present an econometric specification linking the unobserved shadow price of capital to financial market data when returns-to-scale are not necessarily constant and product markets are not necessarily competitive. Furthermore, unlike most Q-studies, we work within a discrete-time framework, and give explicit attention to the relations between inventories, sales, and production. Our new specification allows us to recover parameters characterizing returns-to-scale, product market, and adjustment cost elasticities. Estimates are reported for 12 mature industries in the United States drawn from VALUELINE.

Pages: 17
Date: 1988-09-01
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