Inefficient Investment Waves

Zhiguo He () and Péter Kondor

No 18217, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a dynamic model of trading and investment with limited aggregate resources to study investment cycles. Unverifiable idiosyncratic investment opportunities imply market prices to play a role of rent distribution, distorting private investment incentives from a social point of view. This distortion is price-dependent, leading to two-sided inefficient investment cycles--too much investment in booms with high prices and too little in recessions with low prices. Interventions targeting only the underinvestment in recessions might make all agents worse off. We connect our results to both industry specific and aggregate boom-and-bust patterns.

JEL-codes: E22 E32 E61 (search for similar items in EconPapers)
Date: 2012-07
New Economics Papers: this item is included in nep-mac
Note: CF EFG
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Citations: View citations in EconPapers (7)

Published as Zhiguo He & Péter Kondor, 2016. "Inefficient Investment Waves," Econometrica, Econometric Society, vol. 84, pages 735-780, 03.

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Related works:
Journal Article: Inefficient Investment Waves (2016)
Working Paper: Inefficient investment waves (2016)
Working Paper: Inefficient Investment Waves (2012)
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