Time to Build and Fluctuations in Bulk Shipping
American Economic Review · 2014 · Volume 104 · Issue 2
Abstract
This paper explores the nature of fluctuations in world bulk shipping by quantifying the impact of time to build and demand uncertainty on investment and prices. We examine the impact of both construction lags and their lengthening in periods of high investment activity, by constructing a dynamic model of ship entry and exit. A rich dataset of secondhand ship sales allows for a new estimation strategy: resale prices provide direct information on value functions and allow their nonparametric estimation. We find that moving from time-varying to constant to no time to build reduces prices, while significantly increasing both the level and volatility of investment.
Keywords
Capital Budgeting, Fixed Investment and Inventory Studies, Capacity, Production, Pricing, and Market Structure, Size Distribution of Firms, Automobiles, Other Transportation Equipment, Railroads and Other Surface Transportation
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