Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/192273 
Year of Publication: 
2000
Series/Report no.: 
Discussion Papers No. 291
Publisher: 
Statistics Norway, Research Department, Oslo
Abstract: 
We develop an econometric model for firm exit, using stochastic dynamic programming (SDP) as a starting point. According to SDP, the value of an operating firm can be written as the sum of (i) the net present value of continuing production if the firm is committed to a future exit date, and (ii) the value of the exit option. By approximating the option value by a simple function of its determinants, we derive an expression for the distribution of firm exit probabilities. The model is estimated by pseudo likelihood methods using panel data from the Norwegian Manufacturing Statistics. The applicability of the model is illustrated by assessing to what extent quotas on emissions of carbondioxide increase exits in manufacturing sectors.
Subjects: 
Exit dynamics
stochastic dynamic programming
option value
pseudo likelihood
dynamic panel data
random effects
environmental taxes
JEL: 
C33
C51
C61
D21
Q38
Document Type: 
Working Paper

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