Showing papers on "Physical capital published in 1973"

A Theory of Marriage: Part II

Abstract: I present in this paper the skeleton of a theory of marriage. The two basic assumptions are that each person tries to do as well as possible and that the "marriage market" is in equilibrium. With the aid of several additional simplifying assumptions, I derive a number of significant implications about behavior in this market. For example, the gain to a man and woman from marrying compared to remaining single is shown to depend positively on their incomes, human capital, and relative difference in wage rates. The theory also implies that men differing in physical capital, education or intelligence (aside from their effects on wage rates), height, race, or many other traits will tend to marry women with like values of these traits, whereas the correlation between mates for wage rates or for traits of men and women that are close substitutes in household production will tend to be negative. The theory does not take the division of output between mates as given, but rather derives it from the nature of the ma...

The consumption function when capital markets are imperfect: the permanent income hypothesis reconsidered

Abstract: THE permanent income hypothesis-that both individual and aggregate consumption is determined by the 'trend value' rather than the current level of income-is one of the most widely accepted post-war innovations in Economics. Its proposer, Milton Friedman, also emphasizes that his theory implies a much lower value of the multiplier than was entertained by Keynes.2 Friedman reached his conclusions by adopting an explicitly capitaltheoretic approach to the consumption decision and applying the model so derived both to budget studies and to long runs of aggregate consumption and income data. One of the assumptions of Friedman's model is that capital markets are perfect: although he admits that 'the rate of interest at which an individual can borrow on the basis of his future earnings may . . . differ from the rate at which he can lend'3 he chooses to 'neglect these complications' .3 In the next section of the paper Friedman's model of intertemporal choice is extended to conditions of capital market imperfection. The individual consumption function derived is shown to be substantially non-linear in current income if the elasticity of income expectation is low,4 even for small divergences between lending and borrowing interest rates. This implies that not only the level of permanent income but also the distribution of current income relative to permanent is relevant in the determination of aggregate consumption.5 In particular it is shown that if the main deviations of current from permanent income are due to unemployment and the consequent interruption of some households' labour incomes, and if the capital market imperfection inhibits borrowing by the unemployed, a multiplier is

Financial Disclosure in relation to a Firm's Capital Costs

Abstract: (1973). Financial Disclosure in relation to a Firm's Capital Costs. Accounting and Business Research: Vol. 3, No. 12, pp. 282-292.

The Strategy of Economic Policy and Income Distribution

Abstract: In a capitalist economy, income distribution is compounded out of the distribution of capital income, the dis tribution of labor income and the shares of capital and labor in total income. As capital inequality is much greater than in come inequality, a decrease in capital's share would decrease income inequality. Keynes held that euthanasia of the rentier —that is, a decrease in capital's share of total income—would result from the investment that takes place during sustained full employment. Tolerably full employment has been sus tained ever since World War II, but capital's share of income has not fallen. Full employment over the postwar period has been the result of policy which conformed to a private invest ment strategy. This strategy operates by sustaining and in creasing the returns on capital and also carries threats of finan cial instability and inflation. An alternative public employ ment strategy for full employment policy is available. This strategy would probably lead to a partial euthanasia...

The Transmission Process and the Relative Effectiveness of Monetary and Fiscal Policy in a Two-Sector Neoclassical Model

Abstract: In traditional Keynesian income-expenditure modelsl the assets included appear to be four: money (government demand debt and bank demand deposits), long-term government bonds, private debts, and physical capital. Although there are four assets in these models, there are only two yields: the rate of return on money, which is institutionally set at zero, and the rate of interest, which is common to the other three assets and is usually identified with the rate of interest on long-term government bonds. This reflects the underlying assumption of the Keynesian theory that capital, long-term government bonds, and private debts are perfect substitutes for one another in wealthowners' portfolios. As a result of this assumption there is only one yield differential to explain, or, alternatively, only one portfolio choice-that between money and earning assets. This assumption may also be responsible for the failure of Keynesian models to relate explicitly the stock of real capital to the flow of investment spending [38, p. 106] . One line of development subsequent to Keynes' theory of the demand for money has been the disaggregation of assets other than money and the elaboration of liquidity preference theory into a general theory of the relative prices of assets of different types. In recent years this has led to the formulation of a general theory of asset holdings in which the quantity of each asset held is determined by the rates

The Contribution of Science and Technology to Economic Development

Abstract: The broad question, what is or has been or could be the contribution of science and technology to economic growth, may be asked for a number of reasons. First, we may want to know as a matter of intellectual curiosity, how important science and technology have been as a source of economic growth in the past, compared with other sources of growth. Secondly, for purposes of policy, we may want to know the likely effects on economic growth of an increase (or decrease) in the total amount of scientific and technological input. Thirdly, again for purposes of policy, we may want to know the best way of allocating a given amount of such inputs in the interests of economic growth.

Human capital: deterioration and net investment

Abstract: The current practice in national accounting is to exclude from national product investment in schooling and on-the-job training, except for direct costs of schooling which are included in consumption. Foregone earnings, which form the major part of investment in human capital, go unrecorded. Much is to be gained in consistency and analytical clarity by treating human capital like physical capital in national accounting. Estimating the amount of foregone earnings net of deterioration, that is, net investment, is a step in this direction. Using the framework of the life-cycle hypothesis of earnings, and assuming declining-balance deterioration of human capital, estimates of deterioration rates in respect of American males by race and education level are computed for 1960. Every such d is, however, the minimum consistent with the respective costs and benefits profile. Hence an upper limit d is assumed. The model generates for each costs and benefits profile and in respect of either d, a year-by-year series of net investment in human capital. These are used to obtain two estimates (which turn out to be close to each other) of aggregate net investment in American white males in 1960. On the basis of these estimates, aggregate net investment in human capital is found to be about equal to net investment in physical assets (including consumers’durables). It is also found that the Denison method of estimating the contribution of the increase in human capital to economic growth understates this contribution by a ratio approximately equal to net investment in on-the-job training to returns to human capital. This was about 16 percent in 1960.

Birth control and the argument of saving and investment.

Abstract: The thesis that birth control is a valid means of increasing saving and investment to stimulate growth in underdeveloped countries is analyzed. The primary assumption of the arguments based on the Harrod-Domar model -- capital is scarce in Latin America and that a growing population tends to reduce the capital per capita and that to increase development it is necessary to increase greatly the proportion of the gross national product based on investments -- lack empirical evidence in the context of the Latin American economies. In actuality the situation in Latin America is that there is not a scarcity of capital but a great underutilization of capital. Part of this underuse takes place because control of capital is limited to the high-income sector of the population as a result of a highly skewed distribution of income in those countries. Policies based on investment are aimed at maximizing still further this unequal distribution of income. Investments made in these sectors absorb little of the labor force increasing even more the unemployment situation in Latin America. The situation is overpopulation then growing in the same degree as capital accumulation. The strategy of birth control directed particularly at those who are unable to save will obviously increase neither investment nor saving. The so-called savings on education and public health are destined to be minimal because in the current distribution of resources these sectors consume little of the national product.(AUTHORS MODIFIED)

The Cost of Capital and the Demand for Money by Firms

Abstract: 1. They do not use a cost-of-capital variable in their cross-section analysis and thus assume implicitly that all the firms in a given cross-section have the same cost of capital. This assumption, however, is inconsistent with the theory of finance, which suggests that cost of capital of a firm depends on its appropriate risk class. 2 2. They use aggregate data of firms in different industries rather than data of individual firms.

Capital and Time: A Neo-Austrian Theory

Abstract: This book, first published in 1973, takes up an important approach to capital which had gone out of fashion. It is being reissued in paperback in recognition of the recent renewed interest in this approach. The 'Austrian' theory of capital concentrates on the inputs and outputs in the productive process, and has an advantage over more modern theories of economic dynamics in that it is more naturally expressible in economic terms: the production process over time is taken as a whole, rather than disintegrated. However, this approach had been largely abandoned because it seemed to be unable to deal with fixed capital. Sir John overcomes this problem here by allowing for a sequence of outputs, and the consequences for dynamic economics are profound and novel.

Capital-Labor Substitution and Technical Progress in Planned and Market Oriented Economies: A Comparative Study

Abstract: Many economists have attempted to measure aggregate growth performance of various economic systems. Empirical studies on this topic dealt primarily with measurement of gross national product and its main components for different countries. In one of his pioneering works Kuznets [11] presented the aggregate and per capita GNP levels and the rates of growth of these indices for various countries. While such estimates of rates of growth of GNP are interesting in themselves, the contributions of Solow [14] and Denison [5] stimulated interest among economists concerning the question of why these growth rates differ. The literature on economic growth and development cites differences in the initial conditions as a major cause for the differences in the rates of growth of the developed and underdeveloped nations. Another argument attributes differences in growth rates to differences in the quality of physical capital and technologies used in production. The human capital literature claims that different growth rates arise due to differences in the quality of labor which depends on such factors as education, health, age, sex composition, etc. In recent years, some monetary economists, e.g. Nadiri [13], have suggested that money ought to be treated as an additional factor of production. Hence one may argue that differences in growth rates are due to different degrees of monetization. Comparative systems literature would argue that growth differentials are due to differences in patterns of organization of the economic activity. In our study we are interested in comparing the growth performance of countries characterized predominantly by centralized socialist economic planning vs. countries with decentralized decision making and with a predominant private sector. The comparison of growth performances of the present study is based on the estimated structural parameters of production for the manufacturing sectors of various countries. The production structure for the manufacturing sector in each of the countries under investigation is assumed to be of CES form of Arrow et al. [1] with Hicks neutral technical progress. Handicapped by the quality of the available data, we have limited our investigation to cover only six countries: USSR, Hungary, and Yugoslavia -in the first category; and USA, Canada, and Israel-in the second one. In a similar attempt, Balassa and Bertrand [2] tried to compare the growth performance of a wider variety of countries. They have used primarily, however, unpublished data that we could not obtain and whose quality we could not have judged. This was, furthermore, coupled with highly deficient assumptions that we will comment upon in the next section. In the following section a unified treatment of the various explanatory factors of growth differentials is provided. Section III outlines our approach and presents the cross differences in rates of technical progress with other parameters of the production * We are greatly indebted to our colleague James Gapinski for his comments and suggestions. The authors alone are responsible for any errors. This research was supported in part by a Summer Research Grant to the first author by the Florida State University. P. Hanumantha Rayappa assisted us in carrying out the computational work reported in Section III. 103

Asset selection with changing capital structure

Abstract: One of the major problems in finance is that of combining the separate costs of debt and equity into an appropriate cutoff rate for new investment; this problem is particularly acute when the firm is changing its capital structure. Solutions to this problem which have been proposed include various types of both marginal costing and average costing.

The scope for labor capital substitution in the developing economies of Southeast and East Asia : a sectoral approach

Abstract: Hypotheses explaining an alleged failure of production techniques to adapt to social factor prices are examined. Research and policy priorities in Southeast and East Asian countries have a broad spectrum of experience in labor capital substitutions ranging from a high degree of adaptation in outward oriented economies to capital-intensive manufacturing enclaves in import substitution oriented countries. Manufacturing has attracted the most attention to labor capital substitution opportunities because it is the first sector in which capital intensiveness becomes evident. On the theoretical side, aggregative two-factor growth models must be broadened if they are to account for social factor pricing. Technological change has to be understood, administrative capability has to be considered, capital and labor must be broken down to their non-homogeneous components, and intersectoral relationship must be addressed if meaningful hypothesis are to be tested. The contrasting experience of balanced growth countries and those with industrial import replacement confirms that factor prices and the sectoral and product mix are critical to the choice of appropriate technology.

Three ways to present the marginal cost of capital

Abstract: Textbooks, courses, Some Associate I and teachersinelementary large of the Finan economics consistently ciation have expres of Financial Manag, teach that profits for a tutorial articles. Al tutorial articles. Alt firm are at a maximum to preempt space b when marginal cost equals tinuous publication, marginal revenue. Many of Arditti and Tys teachers in finance, howPresent the Margin , ., * . . ,nifies our willingnes ever, neglect this principle tifes on a seleines ev r, 0 i r ~~tidcles on a selective b in the teaching of capital budgeting. Perhaps this is partly because a firm's capital may be a mix of funds from a number of sources; debt, preferred stock, common stock etc., at varying costs, and, even if a firm's optimal capital mix is known, additional funds are not raised simultaneously in the same proportions. Then, to avoid the obviously unsupportable position that the capital budgeting cut-off rate should be at the cost of debt this year because this is the year to raise debt, and at the equity rate next year, because next year is the year to raise equity some have used weighted average cost of capital. (For additional discussion of the use of the weighted average cost of capital, see [1].) A cursory review of a dozen current textbooks confirms this. Our interpretation is that only five Editc cial

Rates of return to physical capital in manufacturing industries in argentina

Abstract: The study covers most of the industrial (manufacturing) groups under the International Standard Industrial Classification at the three-digit level. Given the disparity in the size of groups and the way in which the sample was drawn, the results are presented for thirty-seven industrial groups. The estimates have been done for the corporate sector only. Of course, it would have been desirable to work with the noncorporate sector as well, but the necessary data were not available. Estimates of rate of return are useful for several purposes: 1. They provide a basic tool for project evaluation, both social and private. The discussion about the appropriate discount rate for social projects has been thoroughly reviewed in the literature. Professor Harberger has concluded that the appropriate rate is a weighted average of the private sector marginal productivity of capital and the net of tax yield on private savings. The estimates obtained in Section II provide useful information to approximate that rate. 2. Knowledge of rates of return in different sectors would also allow us to evaluate whether the allocation of capital among different areas is efficient or not. If we can show that there are significant differences among rates of return of different sectors, that these do not tend to narrow down over time, and that investment in the sectors with higher rates of return does lot increase in relation to other sectors, generally this would constitute evidence of a malfunctioning of the capital market. A partial evaluation along this line is made in Section II. 1 This article is based on material included in the Ph.D. dissertation presented in the

Stock market capital gains and consumption expenditures

Abstract: THIS STUDY examines time series and cross section data for evidence that stock market gains and losses influence consumption spending. Several consumption function studies have found net worth changes to be highly significant. And, because capital gains on equities have comprised a major part of net worth changes since World War II, one might expect that stock market fluctuations would have exerted an important influence on spending during these years. Yet, a study by J. Arena, which examined 1947-1964 time series data to assess the impact of stock market changes on spending, found near zero and nonsignificant coefficients for the gains variable. This contrasted with verbal evidence, also reported by Arena, indicating that merchants of a number of luxury items believed that stock market changes affected their sales. Arena concluded that aggregate consumption spending was little affected by stock market gains because of the highly skewed distribution of stock ownership. Wealthy stockholders were believed to alter their spending patterns very little in response to gains, with the particular goods affected comprising a relatively small fraction of total consumption spending. The time series regressions performed in this study, primarily using Arena's data, were designed to measure separately the effects of lagged stock market capital gains and lagged stock market capital losses. The regressions also included a number of variables omitted from Arena's annual regressions. There were a number of reasons to expect that the coefficients for gains and losses might differ; if they did, the failure to measure the effects separately would lead to poor results for the single coefficient on gains and losses. Significant positive coefficients in the .05 .07 range were obtained for lagged stock market gains. The coefficient on losses depended very much on whether or not the observation measuring the severe 1962 stock market decline was included in the regression sample. If excluded, the coefficient on losses was not significantly different from the gains coefficient. If included, the coefficient on losses did differ significantly (in the negative direction) from the gains coefficient. In either case, of course, the gains coefficient was unaffected. Had Arena estimated separately the coefficients for gains and losses, or had he performed his regressions on samples excluding the 1962 data, he would have obtained results more in keeping with those reported here, and would have reached different conclusions than he did. The cross section regression analysis, employing data taken from the 1960-1962 Surveys of Consumer Finances, extensively used binary variable interaction terms to contrast the durable goods spending behavior of stockholders and nonstockholders in 1960 and 1961. Many of the individual interaction terms were significant, and the overall regression results were, in most cases, significantly improved by inclusion of the interaction terms. The existence of definite durable goods buying plans at the beginning of the year was a highly significant factor, and the effects of buying plans and stockownership appeared to be related.

General Model of Imperfect Capital Markets

Abstract: Extant capital market theory, (e.g. [6, 10, 13, 15, 18], wherein the equilibrium return on a financial asset is shown to be a linear function of the return on a broad economic indicator or "market portfolio" is an extraordinarily powerful construct. It, at once, has provided economists with a theoretical tool for studying investor behavior under uncertainty and has generated a multitude of testable hypotheses concerning the way securities markets actually work and how investors actually behave. However, several shortcomings of the theory are apparent. First, it cannot explain the holding of other popular financial assets, most notably real estate and life insurance. Second, it fails to explain why similar assets may be selling for different prices in different markets even after special restrictions and controls have been taken into account.1 Third, it is, as developed, not a completely appropriate tool for capital budgeting decisions for it provides little insight into the fact that individual firms do not hold fully diversified "portfolios" of real assets, and may, in fact, not want to hold such collections. The purpose of this paper is to develop a general structure within which the parameters of future research into the area of asset selection and investor behavior under uncertainty in the presence of segmented and/or otherwise imperfect markets can be placed. However, its focus is, without loss of generality, on the market for securities. There is a more general explanation of the aforementioned exemplary shortcomings as well as others which can be identified by the reader. First, there are imperfections within

The Timing of Investments in Human Capital: A Case in Education

Abstract: The timing of investments in human capital is important. Since the net present value of an investment in human capital may change over time, the decision to invest should be made so as to maximize the net present value of the investment. After sketching the proper decision rule in cases where timing is important in an investment, the net present value of completing eighth grade rises for nonwhites in the South. This finding suggests that it might sometimes be wise to delay investments in education until the students are older.

Equilibrium Growth of Capital and Labor

Abstract: 2. The difference between the warranted and natural growth rates rests on the assumption of fixed coefficients of production. If the model would allow for substitution, both growth rates would coincide.3 This paper is an attempt to meet both objec tions. With respect to the first point, the assump tion of the equality of saving and investment is relaxed. This is achieved by replacing Keynes' definition of savings by Robertson's. With re spect to the second point, the model is changed so as to apply to production functions with fixed as well as variable coefficients. Since no resort is