Limited attention, interaction and the gradual adjustment of a firm's decisions

B-Tier
Journal: Journal of Economic Dynamics and Control
Year: 2009
Volume: 33
Issue: 2
Pages: 345-362

Score contribution per author:

2.011 = (α=2.01 / 1 authors) × 1.0x B-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

A person cannot make many decisions at a time, but an organization needs millions of interrelated decisions. We incorporate this idea into a standard theory of production. Two assumptions are emphasized: an agent cannot optimize more than one input at a time, and there is interaction among inputs. When a firm alternates its attention, the demand for inputs gradually adjusts to the static optimal level. When a firm optimally allocates its attention, this adjustment may not occur. We investigate the conditions under which the adjustment takes place. The results are applied to a standard investment theory. The derived investment-capital ratio is independent of firm size and imperfectly correlated with Tobin's Q.

Technical Details

RePEc Handle
repec:eee:dyncon:v:33:y:2009:i:2:p:345-362
Journal Field
Macro
Author Count
1
Added to Database
2026-01-29