Equilibrium Adjustment with Endogenous Information and Inventories.

This paper analyzes the interaction of information acquisition and inventory flexibility with industry adjustment to imperfectly perceived cost and demand disturbances. Improved information about disturbances are unperceived and dampens the use of inventories. Reduced inventory flexibility induces firms to devote more resources to acquiring information about disturbances. The analysis demonstrates how equilibrium price and output adjustment depend endogenously on the degree of inventory flexibility and other structural parameters influencing the acquisition of information. Copyright 1991 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.