Home | Databases | WorldLII | Search | Feedback Edited Legal Collections Data

"The Effect of Market Structure Upon Induced Investment" [2004] ELECD 201; in Minsky, P. Hyman; Papadimitriou, B. Dimitri (eds), "Induced Investment and Business Cycles" (Edward Elgar Publishing, 2004)

Book Title: Induced Investment and Business Cycles

Editor(s): Minsky, P. Hyman; Papadimitriou, B. Dimitri

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781843762164

Section: Chapter 8

Section Title: The Effect of Market Structure Upon Induced Investment

Number of pages: 43

Extract:

8. The effect of market structure upon
induced investment
1. INTRODUCTION

`Direct'1 induced investment by the firms in an industry is the result of an
upward shift in the demand curve for the product. Such induced investment
can take the form of either a change in stocks, a change in `work in
progress', or a change in plant and equipment. With a fixed plant the level
of stocks and work in progress are determined by the level of output. This
stock-flow relation has been put into the form of difference equations.2
There is little doubt of the validity and wellnigh automatic nature of this
relation. The questionable relation is between changes in output and
changes in plant and equipment. The inventory cycle can follow an accel-
erator pattern without investment in plant and equipment conforming to
the pattern.
Major business cycles can be imputed to variations in plant and equip-
ment investment. Hence, if models based upon induced investment are to
be the core of business cycle theory, the accelerator must refer to changes
in plant and equipment. Such investment can take one of two forms:
either existing firms expand or new firms enter the industry. The expan-
sion of existing firms can be identified as the change in the short run mar-
ginal cost curve along a planning curve. For all firms the planning curves
have to contain the effects of both the financing conditions and the eval-
uation of risk associated with debt financing. For ...