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The investment good market, together with the consumer good market, the money market and the labour market, are indeed the most extensively studied markets. The exhaustive survey of investment theory by Eisner and Strotz, already quoted four hundred references in 1963, although this work advocating for adjustment costs, was in fact only carried out at the very beginning of modern investment theory! This chapter gives an introduction of the extensive field and is an attempt to present some key ideas of investment theory. 1) We show that modern investment theory is the integration of many traditional approaches. The content of the chapter is set as follows. Section 2 presents an illustrative model of investment theory. Section 3, using this model, describes the investment decision of the firm. Sections 4 to 10 each present a "classical" investment hypothesis within the framework of the model. Section 11 concludes. For convenience, the key to the symbols used is given in Table 1. 2. The Model of the Firm Investment theory was born with the claim of Keynes (1936) that besides the capital demand (demand for a stock of capital at a point in time), an investment demand (demand for the increment of the capital stock in a period 1) Recent surveys are: Abel (1988), Coen and Eisner (1987) Artus and Muet (1984). The book on investment theory by Nickell (1978) is outstanding.

Inhaltsverzeichnis

Frontmatter

New Issues in the Theory of Investment: Modernization and Persistence Effects

Abstract
This monograph is about new issues in investment theory. New economic developments which started in the 80’s and presumably will last through the 90’s give the opportunity to ask new and challenging questions in the field of investment theory.
Marcel Savioz

Chapter One. Investment Theory: An Integrative Framework

Abstract
Chapter One gives a survey of investment theory. The reader is introduced to the main problem and the main approaches to investment theory.
Marcel Savioz

Chapter Two. Ageing of Capital Stock and Fiscal Policy

Abstract
This chapter could also have been titled: “Replacement and Modernization Investments” in reminiscence of a paper by Feldstein and Foot published in 1971 with the title: “The Other Half of Gross Investment: Replacement and Modernization Expenditures”. These authors pointed out that besides net investment, the half of the story on which investment theory focuses, there is also replacement investment being of an as important order of magnitude. Their point is even more pertinent twenty years later: the importance of replacement investment relative to net investment steadily increased in the meantime. For example, in the United States, the real net investment (as a share of NNP) remained below its long-term 1947–1988 average in the 80’s, whereas the real gross investment (as a percent of GNP) remained over its long-term 1947–1988 average in the same period! Therefore, it is very important to dispose of a tractable model of “replacement and modernization expenditures”. The purpose of Chapter Two is precisely to set up such a model. The model is used to investigate whether there is a link between fiscal policy and the average age of capital stock. It is found that if depreciation through use is not negligible, a policy to spur investment is only possible at the cost of causing an ageing of capital stock.
Marcel Savioz

Chapter Three. Persistence of Extensive Growth

Abstract
If the key word of Chapter Two is “modernization investment”, the key word of Chapter three is “misinvestment”. What is a misinvestment? A misinvestment is an investment which conserves or changes the composition of capital stock away from its desired long run composition. Misinvestments make the convergence process to the desired long run composition of capital stock lengthy because sooner or later corrective investments have to be undertaken.
Marcel Savioz

Chapter I. Investment Theory: An Integrative Framework

Abstract
The investment good market, together with the consumer good market, the money market and the labour market, are indeed the most extensively studied markets. The exhaustive survey of investment theory by Eisner and Strotz, already quoted four hundred references in 1963, although this work advocating for adjustment costs, was in fact only carried out at the very beginning of modern investment theory! This chapter gives an introduction of the extensive field and is an attempt to present some key ideas of investment theory.1) We show that modern investment theory is the integration of many traditional approaches.
Marcel Savioz

Chapter II. Ageing of the Capital Stock: A Long Run Side-Effect of Expansive Fiscal Policy

Abstract
The first goal of this chapter is to investigate whether a fiscal policy designed to increase investment, like the one undertaken by the Reagan administration in 1981, can affect the average age of capital stock. The second goal is to set up an investment model which takes into account the depreciation of capital goods caused by the intensity of use.
Marcel Savioz

Chapter III. Persistence of Extensive Growth: A Growth Model of the Soviet Economy

Abstract
The performance of the bureaucratic planning system of the USSR was so poor in the 70’s and 80’s that drastic economic reforms could hardly be delayed further. Mr. Mikhail Gorbachev, General Secretary of the Party since 1985, thus started a process of economic reforms under the name of “Perestroika” (restructuring).
Marcel Savioz

Backmatter

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