Investment under Demand Uncertainty and Capacity Constraints. An Empirical Application to Belgium.

This paper evaluates the relevance of q theories under stochastic demand and capacity constraints by estimating an investment function for the Belgian economy. Under these theoretical conditions, we find that the investment rate depends on average q and on the expectations about the degree of capacity utilisation. The dynamics of the empirical model is derived without using any " time to build " or " delivery lags " assumptions. Our estimation stresses how important are the expectations about the degree of capacity utilisation in explaining investment.