Moretto M. (1996)

A note on entry-exit timing with firm-specific shocks. Giornale degli Economisti e Annali di Economia, 75-95.



Recent empirical work and research have highlighted that firm and industry-specific factors play an important role in determining firms’ entry and exit patterns. In particular, such factors account for high post-entry failure rates and persistent differences in exit rates within and across industries. This note shows how firms’ entry and exit decisions should be modified when firm-specific factors of uncertainty are considered. A time consistent policy implies non trival distribution of exits contingent on ex-post information about firm’s efficiency, which is consistent with the selection process mentioned by empirical works. Both a single firm in isolation and a competitive industry are considered.