Abstract
We propose a model that helps answer two questions: (1) what motivates firms to invest in novel technologies, often characterized by low (or negative) returns, forgoing high-profitability projects, and (2) why responses to price changes of seemingly similar firms may differ substantially. The developed framework reveals how financial limitations, production capacity constraints, and expectations on intertemporal price differences and productivity improvements alter investment decisions and the elasticity of supply. Using the U.S. unconventional oil and gas investment and production data, we reveal the trade-off between profit generation and investment-driven improvements in productivity. Then, with simulations, we show how the price elasticity of supply may differ across firms with different financial and production capabilities and how learning abilities and price expectations explain the negative elasticity (or “backward-bending” supply curve) phenomenon.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
