By P. N. Junankar (auth.)
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Extra resources for Investment: Theories and Evidence
DISTRIBUTED LAGS2 There are various reasons for the existence of time lags in investment functions. As we saw earlier (p. 33) there is a decision lag and then a delivery lag. The decision lag might be purely due to administrative reasons or, because of uncertainty, due to management being cautious. In the above format, if K* = K* (xe) where X e is a vector of expected values 1 More detailed surveys of empirical work can be found in Eisner and Strotz , Evans  and Lund , chapters 3-5.
3 It appears to us that the neo-Keynesian approach which optimises along the adjustment path is a more fruitful approach. 1 This point is made in an interesting unpublished paper by M. Nerlove, 'On Lags in Economic Behaviour'. 2 See above pp. 15-16 and Chapter 4. 3 Compare with the Keynesian approach of Chapter 2. 61 6 The Real World (Estimated Investment Functions) Having surveyed the theoretical literature we are now in a position to assess the empirical work. The empirical literature (especially for the United States) is extensive so we shall be forced to be selective.
K1,1----1 time over which , delivery is spread FIG. 9 Assuming an initial equilibrium, an increase in l' after a lag of i periods leads to an increase in the planned capital stock. This means that there is a capital 'shortage' and the firm orders capital goods. Mter a lag of j periods the delivery is made and the firm has increased its capital stock and the rate of investment is the shortage divided by the time over which the delivery of capital goods is spread. Note that there is no demand for investment, there is a demand for capital stock, but realised investment is determined by the delivery lags.