Inefficient Investment Waves

• 成果类型: Article
• 署名作者: He, Zhiguo; Kondor, Peter
• 署名单位: University of Chicago; National Bureau of Economic Research; University of London; London School Economics & Political Science; Centre for Economic Policy Research - UK
• 刊物名称: ECONOMETRICA
• ISSN/ISSBN: 0012-9682
• DOI: 10.3982/ECTA11788
• 发表日期: 2016
• 页码: 735-780
• 关键词: Collateral constraints; Market equilibrium; cash; externalities; volatility; POLICY; booms; debt

摘要

We show that firms' individually optimal liquidity management results in socially inefficient boom-and-bust patterns. Financially constrained firms decide on the level of their liquid resources facing cash-flow shocks and time-varying investment opportunities. Firms' liquidity management decisions generate simultaneous waves in aggregate cash holdings and investment, even if technology remains constant. These investment waves are not constrained efficient in general, because the social and private value of liquidity differs. The resulting pecuniary externality affects incentives differentially depending on the state of the economy, and often overinvestment occurs during booms and underinvestment occurs during recessions. In general, policies intended to mitigate underinvestment raise prices during recessions, making overinvestment during booms worse. However, a well-designed price-support policy will increase welfare in both booms and recessions.