Investment, Private Information and Social Learning: A Case Study of the Semiconductor Industry
Rose Cunningham ()
Macroeconomics from University Library of Munich, Germany
Social learning models of investment provide an interesting alternative explanation for sudden changes in investment behaviour. Caplin and Leahy (1994) develop a model of social learning in which agents learn about the true state of demand from the investment suspension decisions of other agents. In this paper, I test the main predictions of their model using a unique database of investment projects undertaken by semiconductor plants. I find that firms that are installing a significant new technology appear to be influenced by social learning because they are more likely to suspend their investment project when other suspensions occur. A 1% increase in the number of other suspensions increases the probability of suspension by an average new technology plant by 3.6%. Others’ suspensions also significantly affects plants that use conventional technology, but it is a negative effect. The conventional technology plants are less likely to suspend their investment project when other firms suspend, which suggests that their payoffs are strategic substitutes as in a “war of attrition” game.
Keywords: social learning; business cycles; investment; technology adoption; observational learning (search for similar items in EconPapers)
JEL-codes: C35 E32 L63 (search for similar items in EconPapers)
Pages: 39 pages
New Economics Papers: this item is included in nep-bec and nep-mac
Note: Type of Document - pdf; pages: 39. Bank of Canada Working Paper 2004-32
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Working Paper: Investment, Private Information, and Social Learning: A Case Study of the Semiconductor Industry (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpma:0409021
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