Showing papers on "Physical capital published in 1981"

Occupational self-selection: a human capital approach to sex differences in occupational structure.

Abstract: A rich and diverse literature exists concerning the distribution of labor incomes. One approach namely that of human capital concentrates on lifetime accumulation paths of "earnings capacity units" (human capital). Individual variations in human capital imply differences in earnings power thereby yielding strong implications concerning earnings distribution within a population. Despite its explanatory power the human capital model has been widely criticized. One criticism centers on its inability to obtain inferences concerning occupational distribution. The purpose of this paper is to alleviate at least some such criticism by applying the hedonic price approach so as to embed occupational choice into the human capital framework. The significance is that neoclassical economic theory can be used to obtain implications concerning the determinants of occupational structure. (excerpt)

Firm-Specific Human Capital as a Shared Investment

Abstract: The standard analysis of firm-specific human capital argues that the cost of and the return to the investment will be shared by the worker and the employer. By sharing the investment, the parties reduce the likelihood of either party unilaterally terminating the employment relationship and imposing on the other party a loss in his return. This argument, originally advanced by Gary Becker (pp. 10-15), has become accepted almost as a theorem.' The sharing decision is particularly important in determining the shape of the wage profile and the behavior of labor turnover in the labor market. The exact decision process involved in determining the sharing arrangement, however, appears to have received little attention in the literature.2 In this paper, a formal statement of the sharing model is presented. The model allows a systematic analysis of the incentive to share the investment in firm-specific human capital. My analysis reveals that whether or not the investment is shared depends on the existence in the post-investment years of costs of evaluating and agreeing on the worker's productivities in the firm and elsewhere. This paper and two others (my 1979 article and my article with Ben Yu) demonstrate the usefulness of the sharing model. My 1979 article develops and tests the hypothesis that the ubiquitous bonus payments in Japan can be understood as payments for the returns to firm-specific human capital. The paper with Yu extends the analysis of firm-specific human capital by considering the incentives for introducing wage flexibility in employment contracts. Various dismissal and quitting rules are also compared in that paper. In this paper, I use the model in its simplest form to offer a formalization of Becker's hypothesis concerning the sharing of the gains and costs of specific training. In so doing, I demonstrate that the Becker hypothesis can be viewed as a direct application of the Coase Theorem. Implications of the model for the experience-earnings profile are also discussed. This paper also clears up some confusion in the literature about the validity of the sharing hypothesis (see fn. 1).

Productivity and R and D at the Firm Level

Abstract: This paper analyzes the relationship between output, employment, and physical and R&D capital, for a sample of 133 large US firms covering the years 1966 through 197 In the cross sectional dimension, there is a strong relationship between firm productivity and the level of its R&D invespments In the time dimension, using deviations from fire means as obserrations and unconstrained estimation, this relationship bomes closa to vanishing This may be due, in part, to the increase in collinearity between trend, physical capital, and R&D cap)tal in the within dimension, leaving little ildependent variability there When the coefficients of the first two variables are constrained to reasonable values, the R&D coefficient is both sizeable and significant The possibility of simultaneity between output and employment decisions in the short run is also investigated Allowing for this via the use of a semi-reduced form equations system yields rather high estimates of the importance of R&D capital relative to physical capital Our data do not allow us, however, to answer any detailed questions about the lag structure of the effects of R&D on productivity These effects are apparently highly variable, both in timing and magnitude

Productivity and R&D at the Firm Level

Abstract: This paper analyzes the relationship between output, employment, and physical and R&D capital, for a sample of 133 large U.S. firms covering the years 1966 through 197. In the cross sectional dimension, there is a strong relationship between firm productivity and the level of its R&D invespments. In the time dimension, using deviations from fire means as obserrations and unconstrained estimation, this relationship bomes closa to vanishing. This may be due, in part, to the increase in collinearity between trend, physical capital, and R&D cap)tal in the within dimension, leaving little ildependent variability there. When the coefficients of the first two variables are constrained to reasonable values, the R&D coefficient is both sizeable and significant. The possibility of simultaneity between output and employment decisions in the short run is also investigated. Allowing for this via the use of a semi-reduced form equations system yields rather high estimates of the importance of R&D capital relative to physical capital. Our data do not allow us, however, to answer any detailed questions about the lag structure of the effects of R&D on productivity. These effects are apparently highly variable, both in timing and magnitude.

Human Capital and Economic Growth

Abstract: Individuals differ in both inherited and acquired abilities, but only the latter differ among countries and time periods. Human capital analysis deals with acquired capabilities which are developed through formal and informal education at school and at home, and through training, experience, and mobility in the labor market. Just as accumulation of personal human capital produces individual economic (income) growth, so do the corresponding social or national aggregates. At the national level, human capital can be viewed as a factor of production coordinate with physical capital. This implies that its contribution to growth is greater the larger the volume of physical capital and vice versa. The framework of an aggregate production function shows also that the growth of human capital is both a condition and a consequence of economic growth. Human capital activities involve not merely the transmission and embodiment in people of available knowledge, but also the production of new knowledge which is the source of innovation and of technical change which propels all factors of production. This latter function of human capital generates worldwide economic growth regardless of its initial geographic locus. Contrary to Malthus, economic growth has not been eliminated by population growth. Indeed, spatial and temporal patterns of the "demographic transition" appear to be congruent with economic growth. Human capital is a link which enters both the causes and effects of these economic-demographic changes.

The Welfare Cost of Capital Income Taxation in a Growing Economy

Abstract: The welfare cost of capital income taxation is analyzed in a general equilibrium framework, where the private sector is represented by a competitive household endowed with perfect foresight and an infinite life. The value of the welfare cost depends essentially on the elasticity of substitution between capital and labor in the production function. Numerical estimates are presented for different values of the parameters of the model. The welfare gain obtained by the abolition of the capital income tax is smaller when the private sector is not endowed with perfect foresight (it is reduced by about 40 percent when expectations are myopic). The allocation efficiency cost of the corporate tax dwarfs the intertemporal welfare cost.

Contemporary Financial Management

Abstract: Part I: INTRODUCTION. 1. The Role and Objective of Financial Management. 2. The Domestic and International Financial Marketplace. 3. Evaluation of Financial Performance. 4. Financial Planning and Forecasting. Part II: DETERMINANTS OF VALUATION. 5. The Time Value of Money. 6. Fixed Income Securities: Characteristics and Valuation. 7. Common Stock: Characteristics, Valuation, and Issuance. 8. Analysis of Risk and Return. Part III: THE CAPITAL INVESTMENT DECISION. 9. Capital Budgeting and Cash Flow Analysis. 10. Capital Budgeting: Decision Criteria and Real Option Considerations. 11. Capital Budgeting and Risk. Part IV: THE COST OF CAPITAL, CAPITAL STRUCTURE, AND DIVIDEND POLICY. 12. The Cost of Capital. 13. Capital Structure Concepts. 14. Capital Structure Management in Practice. 15. Dividend Policy. Part V: WORKING CAPITAL MANAGEMENT. 16. Working Capital Policy and Short-Term Financing. 17. The Management of Cash and Marketable Securities. 18. The Management of Accounts Receivable and Inventories. Part VI: ADDITIONAL TOPICS IN CONTEMPORARY FINANCIAL MANAGEMENT. 19. LEASE AND INTERMEDIATE-TERM FINANCING. 20. Financing with Derivatives. 21. Risk Management. 22. International Financial Management. 23. Corporate Restructuring. Appendix 2A: Taxes. Appendix 5A: Continuous Compounding and Discounting. Appendix 9A: Depreciation. Appendix 10A: Mutually Exclusive Investments Having Unequal Lives. Appendix 14A: Breakeven Analysis. Appendix 20A: The Black-Scholes Option Pricing Model. Appendix 20B: Bond Refunding Analysis.

Productivity and the services of capital and labor

Abstract: This paper argues that the slowdown in labor productivity growth that has occurred since 1968 and particularly since 1973 has probably been caused by a decline in the services of capital and labor relative to the measured quantities of these inputs. There is enough suggestive evidence of a decrease in effective labor input relative to measured labor hours to attribute about one-seventh of the productivity growth decline to this source. These effects have been concentrated outside the main manufacturing and industrial sectors. The most important cause of the growth slowdown in recent years seems to be a decline in the services of capital, caused by obsolescence and by the diversion of some part of capital spending to saving energy or product conversion. According to the model in this paper, conventional estimates based on the measured capital stock overstated the rate of total factor productivity growth through the mid-1960s, and the steady-state productivity growth rate of the US economy is lower than has been thought. Thus some part of the recent productivity slow-down is simply a return to the long-run steady-state path. An implication of this paper is that investment may do more to improve productivity growth than a coventional analysismore » predicts. There is an important qualification to this conclusion. We will gain little by adding substantially to the growth rate of gross output if we add little to output net of economic depreciation. The payoff to investment will be exceptionally large provided that new capital can avoid the problem of obsolescence that slowed productivity during the past decade. 64 references, 6 tables.« less

Fiscal Policy, Inflation and the Accumulation of Risky Capital

Abstract: The effect of government policies on the level of investment and inflation has become a major concern of policy-makers in a number of industrial countries. Proposals to raise the level of business investment have included overall tax cuts, tax incentives to spur investment and a reduction in the level of government spending. This paper presents a theoretical apparatus to explore the relationships between fiscal policy, government debt, inflation and capital accumulation. It develops a one-sector growth model embodying a stochastic production function and government fiscal policy. Atomistic agents in the economy choose consumption levels and allocate their wealth between risky capital and risky government debt to maximize expected discounted utility over an infinite horizon. Fiscal policy, by affecting asset yields, affects the composition of portfolios, the price of government bonds and the accumulation of capital. The model is used to answer three general questions: (1) Does the level of government expenditure affect the rate of capital accumulation and inflation in steady state? (2) Does the mode of government finance, when the choice is between an income tax and deficit finance, affect these magnitudes? (3) What is the effect of uncertainty in the productivity of capital on growth? The analysis relates to several areas of literature: (1) the analysis of the relationship between capital accumulation and debt, (2) the theory of the demand for government debt, (3) considerations of the effect of income taxation on risk bearing, and (4) the analysis of capital accumulation under uncertainty. 1. The effects on output and the capital stock of the government's expenditure decision and its decision to finance its expenditure by taxation or debt issue are explored in two major bodies of economic theory. The literature on the "burden of the debt" as developed by Modigliani (1961), Diamond (1965), and Phelps and Shell (1969), for example, implies that policies which increase the value of outstanding government debt will tend to lower the level of the capital stock by displacing capital with public debt in private wealth. The theory of money and growth as represented by Tobin (1965) and Sidrauski (1967b) also implies that government debt displaces capital, but specifically recognizes the role of capital gains on government debt.

Human Capital and Economic Growth

Abstract: Individuals differ in both inherited and acquired abilities, but only the latter differ among countries and time periods Human capital analysis deals with acquired capabilities which are developed through formal and informal education at school and at home, and through training, experience, and mobility in the labor market Just as accumulation of personal human capital produces individual economic (income) growth, so do the corresponding social or national aggregates At the national level, human capital can be viewed as a factor of production coordinate with physical capital This implies that its contribution to growth is greater the larger the volume of physical capital and vice versa The framework of an aggregate production function shows also that the growth of human capital is both a condition and a consequence of economic growth Human capital activities involve not merely the transmission and embodiment in people of available knowledge, but also the production of new knowledge which is the source of innovation and of technical change which propels all factors of production This latter function of human capital generates worldwide economic growth regardless of its initial geographic locus Contrary to Malthus, economic growth has not been eliminated by population growth Indeed, spatial and temporal patterns of the "demographic transition" appear to be congruent with economic growth Human capital is a link which enters both the causes and effects of these economic-demographic changes

The employment relation and spatial division of labor: a hypothesis∗

Abstract: The relationship between labor and capital is one of mutual antagonism and interdependence. Conflict occurs between labor and capital over control of the production process and conditions of employment. However, both classes need one another in order to produce and sustain a livelihood. Spatial decentralization of production and the division of labor can be interpreted as an explicit bargaining strategy of the firm designed to control the power of labor and reinforce the authority of capital. Firms prefer to externalize their labor markets although local conditions, skill requirements, and union power may force internalization and consequently higher costs. Small and relatively depressed local labor markets are favored locations for firms producing standardized commodities. Firms that require specific skills and technical expertise are, on the other hand, more dependent upon the locational preferences of labor. Spatial concentration and agglomeration of production involving both skilled and unskilled workers may not be in the best interests of a firm because of their different labor market strategies related to their preferred employment relations.

12. On the Role of Social Security as a Means for Efficient Risk Sharing in an Economy Where Human Capital Is Not Tradable

Abstract: An intertemporal general equilibrium model of an economy with overlapping generations and two factors of production, labor and capital, is used to analyze the economic inefficiencies caused by the non- tradeability of human capital -and to derive a constrained pareto-optimal sys tern of taxes and transfers which "c.orrectS1 these inefficiencies. It is shown that, in the absence of such a system, this market failure causes the equilibrium path of the economy to deviate from the optimum for two reasons: First, as is well known, people cannot achieve their optimal lifecycle consumption program because early in life when most of their wealth is in the form of human capital, they cannot consume as much as they would otherwise choose. Second, investors cannot achieve an optimal portfolio allocation of their savings. Not only will some investors be forced to bear more risk than they would choose in the absence of this market failure, but because factor shares are uncertain, the portfolios held by investors will be inefficient. The young are "forced" to invest "too much" of their savings in human capital and the old are "forced" to invest "too little" in human capital. Hence, all investors bear "factor-share" risk which if human capital were tradeable, could be diversified away. It is shown that a optimal system of taxes and transfers not unlike the current Social Security system can eliminate this inefficiency, and therefore, it is suggested that a latent function of the present system may be to improve the efficiency of risk-bearing in the economy.

Rate‐of‐Return Regulation and Utility Capital Structure Decisions

Abstract: A CORPORATION'S capital structure is a means for partitioning its return stream among different classes of securityholders and across different states of nature. The primary thrust of capital structure theory has been to determine whether and how this partitioning affects the total value of the firm.1 For a firm subject to rate-of-return regulation, however, the capital structure decision may take on an additional dimension. Under such regulation, the firm's output price is set by an outside agency so as to yield a "fair" return to providers of capital, and, if effective, this process reduces monopoly profits. But if the regulator's price-setting rule depends on the firm's capital structure in some predictable way, the firm may be able to influence price and hence reap additional profits by judiciously choosing its financing mix. The purpose of this paper is to analyze possible "price-influence" effects of a regulated firm's capital structure and to illustrate regulators' attempts to combat them. The determinants of a regulated firm's capital structure have been touched upon in previous papers (Gordon [8], Elton and Gruber [5], Gordon and McCallum [9], Jaffe and Mandelker [11], Meyer [14] and Sherman [24], for example), but that issue has not been their primary concern. The present paper differs from those mentioned above by focusing its attention more directly on the capital structure decision. This issue is of interest in its own right in view of the important position occupied by regulated firms' securities in the capital market, but the approach taken here also serves to highlight and extend some common threads in the previous papers. In particular the results of these papers emerge as straightforward applications of the price-influence principle, and differences among them can be attributed to differing perceptions of the regulator's pricesetting behavior. Section I of the paper discusses the price-influence principle in general terms and describes the circumstances under which it will alter a regulated firm's financing choice. Section II presents three illustrations of how the general principle might work in practice, depending on the price-setting behavior of the regulatory agency. Section III discusses regulators' attempts to thwart the priceinfluence effect, and conclusions are drawn in Section IV.

Productivity and R and D at the Firm Level

Abstract: This paper analyzes the relationship between output, employment, and physical and R&D capital, for a sample of 133 large US firms covering the years 1966 through 197 In the cross sectional dimension, there is a strong relationship between firm productivity and the level of its R&D invespments In the time dimension, using deviations from fire means as obserrations and unconstrained estimation, this relationship bomes closa to vanishing This may be due, in part, to the increase in collinearity between trend, physical capital, and R&D cap)tal in the within dimension, leaving little ildependent variability there When the coefficients of the first two variables are constrained to reasonable values, the R&D coefficient is both sizeable and significant The possibility of simultaneity between output and employment decisions in the short run is also investigated Allowing for this via the use of a semi-reduced form equations system yields rather high estimates of the importance of R&D capital relative to physical capital Our data do not allow us, however, to answer any detailed questions about the lag structure of the effects of R&D on productivity These effects are apparently highly variable, both in timing and magnitude

Market structure uncertainty and the cost of equity capital

Abstract: The ‘cost of capital” plays a key role in the allocation of funds between different sectors of the economy. The linkage between the cost of capital and market power has been hinted at by several authors. However, no rigorous development has been made. This paper uses the simple static analysis of the capital asset pricing model to show that with more market power a firm's cost of equity capital declines. Hence, firms with more market power will be able to raise equity capital at lower market rates than would the competitive firm, if the product market had been perfectly competitive.

Inflation, Corporate Income Taxation, and the Demand for Capital Assets

Abstract: The demand for capital is not systematically related to either the level or the rate of change of "effective" income tax rates on corporate capital assets. Rising inflation during the last 10 years has raised the user cost of capital for durable assets relative to that for short-lived assets even though this inflation has raised effective tax rates for more durable capital less than for short-lived assets. Even with replacement-cost depreciation allowances, the level and pattern of investment incentives probably will continue to vary with the inflation rate.

Factor Endowments, Factor Proportions, and the Allocative Efficiency of U.S. Interregional Trade

Abstract: THE Heckscher-Ohlin (H-O) theory of trade has been subjected to numerous international tests.' Based upon the empirical evidence presented in the literature, it appears that the theory's explanatory power of the actual pattern of international trade is somewhat limited. This may not be surprising, however, when one considers a host of extraneous factors such as tariffs, quotas, and other policy and institutional barriers to trade which distort the pattern of trade. On the other hand, some of the requisites of the H-O theory are more nearly satisfied in interregional trade within a nation. The extent of policy distortions on the overall pattern of commodity trade should be far less in interregional trade than in international trade. Likewise, both production technologies and demand conditions, assumed to be identical between nations in the H-O theory, should be more nearly so among regions within a nation, while the theoretical basis of regional trade is, of course, the same as that of international trade. It is primarily for these reasons that a number of researchers have more recently turned to interregional trade for the purpose of testing the H-O theory. The current literature on the U.S. regional comparative advantage includes the contributions by Moroney and Walker (1966), Moroney (1972, 1975), Estle (1967), and Klaasen (1973). Whereas these studies focused primarily on the pattern of regional production as revealed by value-added concentration ratios for the U.S. South, the major objectives of this paper are (i) to design and perform factor-proportion tests based upon the actual interregional pattern of trade, and (ii) to investigate one neglected empirical aspect of the H-O theory bearing upon the substitutive role that commodity trade plays for direct factor mobility. In section II, we present estimates of the regional distribution of major input supplies in the United States. The input classes considered are capital equipment, human capital, labor, and renewable and nonrenewable natural resources. In particular, we have found that there are fairly distinct differences among U.S. census regions pertaining to relative aggregate input supplies defined by physical capital/labor ratio, human capital/labor ratio, renewable natural resource! labor ratio, and nonrenewable resource/labor ratio. Section III presents the methodology and major empirical findings of the factor-proportions test as adapted to interregional trade. Section IV extends the analysis to consider an alternative hypothesis of the H-O theory based on the substitutive relationship between direct factor movements and commodity trade as embedded in the original H-O theory. This aspect of the theory has not been explicitly dealt with in the empirical literature, and we consider its practical implication concerning the allocative efficiency of trade. A summary section concludes the paper.

The Holding Period Distinction of the Capital Gains Tax

Abstract: United States tax law distinguishes between short-term and long-term capital gains. By taxing long-term gains at a lower rate the law creates an incentive for investors to postpone the realization of short-term gains. This study examines the lock-in effect induced by the differential tax treatment of long- and short-term gains. Analysis of data on corporate stock transactions from 1973 suggests that the lock-in effect is large and, thus, causes investors to alter their investment portfolios. The existence of such an effect is inefficient and results in a reduction in capital market efficiency. The inefficiency might be justified if there were convincing reasons which supported the existence of the holding period distinction. It is commonly argued, for instance, that eliminating the distinction would encourage short-term speculation at the expense of long-term commitment to capital. It is also claimed that this would result in a loss of revenue to the government. This study relies on IRS data and simulations using the NBER-TAXSIM file to examine the validity of these arguments. The results of this study suggest that the holding period distinction is not very effective in deterring speculation and does not increase government revenues; in fact, it may decrease them.

The ‘crowding out’ effect of federal government outlay decisions: An empirical note

Abstract: This note has addressed the empirical issue of crowding out by examining the proportion of GNP devoted to private investment in new physical capital as a function of the proportion of GNP devoted to federal government outlays. Three alternative models were estimated, all of which found evidence of (a) a definite pattern in which private investment is crowded out by government spending and (b) only partial, i.e., incomplete, crowding out. These findings are, in principle, compatible with the studies by Arestis (1979), Abrams and Schmitz (1978), and Zahn (1978).