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Showing papers on "Physical capital published in 1984"


Posted Content
TL;DR: The authors describes the role that informational imperfections in capital markets are likely to play in business cycles and develops a simple illustrative model of the impact of adverse selection in the equity market and the way in which this may lead to large fluctuations in the effective cost of capital.
Abstract: This paper describes the role that informational imperfections in capital markets are likely to play in business cycles. It then developes a simple illustrative model of the impact of adverse selection in the equity market and the way in which this may lead to large fluctuations in the effective cost of capital in response to relatively small demand shocks.The model also derives an expression for the cost of equity capital in the presence of adverse selection and provides informational explanations for several widely observed macro-economic phenomena.

623 citations


Posted Content
TL;DR: A critical survey of studies of own-price demand elasticities for labor as a whole and for workers categorized by demographic group, of substitution parameters among workers of different types, and of workers for capital is presented in this paper.
Abstract: The theory of the demand for labor is presented along with a catalog and critique of methods that are used to estimate the parameters that describe empirical labor-demand and substitution possibilities. A critical survey is presented of studies of own-price demand elasticities for labor as a whole and for workers categorized by demographic group, of substitution parameters among workers of different types, and of workers for capital. The main findings are: 1) The long-run constant-output demand elasticity for labor that istreated as homogeneous is between .15 and .5; 2) Own-price demand elasticities are higher for workers that have less general human capital embodied and them; 3) Skilled labor and physical capital are p-complements; and 4) More tentatively, youths and wornenare q-substitutes in production. The implications and importance for policy of these and other results are discussed. Suggestions for improving the literature and narrowing the range of knowledge of the underlying parameters, especially by concentrating more on disaggregated and even microeconornic data, are presented.

352 citations


Journal ArticleDOI
Jacob Mincer1
TL;DR: In this article, the authors show that growth of human capital is both a condition and a consequence of economic growth, and that human capital activities involve not only the transmission and embodiment in people of available knowledge, but also the production of new knowledge.

281 citations


ReportDOI
TL;DR: A critical survey of studies of own-price demand elasticities for labor as a whole and for workers categorized by demographic group, of substitution parameters among workers of different types, and of workers for capital is presented in this paper.
Abstract: The theory of the demand for labor is presented along with a catalog and critique of methods that are used to estimate the parameters that describe empirical labor-demand and substitution possibilities. A critical survey is presented of studies of own-price demand elasticities for labor as a whole and for workers categorized by demographic group, of substitution parameters among workers of different types, and of workers for capital. The main findings are: 1) The long-run constant-output demand elasticity for labor that istreated as homogeneous is between .15 and .5; 2) Own-price demand elasticities are higher for workers that have less general human capital embodied and them; 3) Skilled labor and physical capital are p-complements; and 4) More tentatively, youths and wornenare q-substitutes in production. The implications and importance for policy of these and other results are discussed. Suggestions for improving the literature and narrowing the range of knowledge of the underlying parameters, especially by concentrating more on disaggregated and even microeconornic data, are presented.

191 citations


Book ChapterDOI
TL;DR: In this article, the authors examined international factor movements in today's world such as labor, capital movements, and direct investment and examined the appropriate conception of capital movements and the appropriate concept of international capital movements simply involves a change in the location but not the ownership of physical capital.
Abstract: Publisher Summary This chapter discusses international factor movements in today's world such as labor, capital movements, and direct investment and examines the appropriate conception of capital movements. Physical capital is transferred abroad through a trade surplus and corresponds to the accumulation of ownership claims against capital located in a foreign country. Hence, the appropriate concept of international capital movements simply involves a change in the location but not the ownership of physical capital. In growth models, the trade surplus corresponding to the transfer of capital must be taken into account. In static models, there is a one-time stock adjustment in which a portion of a fixed stock of physical capital simply moves abroad. The chapter discusses income distribution and factor movements in a general setting of r factors and n goods. International factor movements alter the relative domestic supplies of productive factors and, hence, should change the internal distribution of income. The MacDougall–Kemp model is useful for making illustrative calculations of the impact of immigration on income distribution. The model is limited by the fact that it uses only two productive factors though it is easy to extend the model to more than two factors at the cost of losing its sharp predictive powers.

151 citations


Posted Content
TL;DR: Hayashi as discussed by the authors showed that the rate of investment of a share-value-maximizing firm is a function of q. Hayashi showed that investment equations with q as an independent variable are not ad hoc constructions rather, they are grounded in a theory of the firm with an appealing behavioral hypothesis, viz, value maximization.
Abstract: The "q " theory of investment, which relates investment to the ratio of market to replacement value of capital, has attracted considerable attention in a recent series of papers For instance, a q variable has been used as an independent variable in empirical investment equations estimated by George von Furstenberg (1977), von Furstenberg et al (1980), Burton Malkiel et al (1979), and others These papers, however, leave somewhat unclear the theoretical rationale for using q as an investment determinant This has motivated work by Hiroshi Yoshikawa (1980), Lawrence Summers (1981), Michael Salinger and Summers (1981), and Fumio Hayashi (1982), who show that under certain conditions the rate of investment of a sharevalue-maximizing firm is indeed a function of q This is an important result because it shows that investment equations with q an independent variable are not ad hoc constructions Rather, they are grounded in a theory of the firm with an appealing behavioral hypothesis, viz, value maximization An important assumption underlying this research is that capital can be treated as a homogeneous good Of course, this is an extremely common assumption in the analysis of investment, and is not particularly more bothersome in the q theory context than elsewhere Nonetheless, there are certain situations where it may be desirable or even essential to be able to study investment disaggregated by type of capital good Thus, the purpose of this paper is to examine whether and how the q theory can be extended to this more general case1 Intuitively, one would expect some difficulty with the q theory in the many-capitalgood context, as already noted by James Tobin and William Brainard (1977, p 243) and by Salinger and Summers (p 12) One way to see why is to recall the Tobin-Brainard distinction between "marginal" and "average" q As Hayashi writes,

121 citations


Journal ArticleDOI
TL;DR: In this article, the authors provided the first econometric analysis of the effect of taxation on the realization of capital gains, using a large body of data obtained from individual tax returns.
Abstract: This study provides the first econometric analysis of the effect of taxation on the realization of capital gains. The analysis thus extends and complements the earlier study by Feldstein and Yitzhaki [1978] of the effect of taxation on the selling of corporate stock. The present analysis, using a large, new body of data obtained from individual tax returns, supports the earlier finding that corporate stock sales are quite sensitive to tax rates and then shows that the effect on the realization of capital gains is even stronger.

112 citations


Journal ArticleDOI
Kiong Hock Lee1, Jee-Peng Tan1
TL;DR: In this paper, the authors analyzed the international flow of third level developing country students to advanced countries from the perspective of sending authorities in developing countries, and their principal hypothesis is that the outflow of students is determined primarily by excess demand for third level education in developing country.
Abstract: This study analyses the international flow of third level developing country students to advanced countries from the perspective of sending authorities in developing countries. The magnitude of this flow can hardly be overemphasized; on the basis of a conservative estimate made in the article, the annual loss of foreign exchange entailed by this flow amounted to 17 percent of the interest repayment on total external debts of the lesser developed countries (LDCs) in 1979, a sum which the developing countries themselves can hardly ignore. On an aggregate basis, our principal hypothesis is that the outflow of students is determined primarily by excess demand for third level education in developing countries. The empirical results support this hypothesis, while pointing to the importance of other factors. Excess demand for third level education in the developing countries is one of the most important determinants of the flow of developing country students to the advanced countries. On the whole, expansion of developing country tertiary education, at the national or regional levels, could effectively divert some of the flow to local institutions. Aside from this, expansion can also be argued on the basis of the high returns to third level education in developing countries compared to the returns to physical capital, as well as the considerable economies of scale associated with this level of instruction. Further, given the willingness/ability of the students to pay, as witnessed by the fact that the vast majority of developing country students finance privately their education abroad, the expansion of third level education in LDCs could be funded substantially via user charges and student loan schemes.

111 citations


Posted Content
TL;DR: In a companion study to that of Griliches and Mairesse for the United States, this article investigated the relationship between output, labor, and physical and RD in the time dimension and found that the within-firm estimates are still significant and of a likely order of magnitude.
Abstract: In a companion study to that of Griliches and Mairesse for the United States, we have investigated the relationship between output, labor, and physical and RD it is less so in the time dimension. However, the within-firm estimates are still significant and of a likely order of magnitude.In this respect, they are more satisfactory than the U.S. ones. We show that this is largely due to a better measurement of the variables: (1) the fact that we can use a value-added measure of output instead of sales (or equivalently that we include materials among the factors of the production function); (2) the fact that we can correct the measures of labor, physical capital and output for the double counting or expensing out of the labor, capital and materials components of R&D expenditures.(This abstract was borrowed from another version of this item.)

109 citations



Posted Content
TL;DR: The condition of America's roads, bridges, mass transit systems, and water and sewer facilities has become an issue of increasing controversy as mentioned in this paper, and one view holds that deterioration of this "public infrastructure capital" has reached alarming proportions and that a significant fraction of future national savings will be needed to reverse the damage of past neglect.
Abstract: The condition of America's roads, bridges, mass transit systems, and water and sewer facilities has become an issue of increasing controversy. One view holds that deterioration of this "public infrastructure capital" has reached alarming proportions, and that a significant fraction of future national savings will be needed to reverse the damage of past neglect. Another view argues that there has been no sudden acceleration of decay in capital stock performance, that better facility management can often substitute for capital investment, and that attempts to greatly increase the size and condition of the public capital stock would place unsustainable pressure on financial markets, state and local government budgets, and the federal system of grants-in-aid. How extensive is the capital infrastructure problem? How did it arise, given the many federal government subsidies available for state-local capital expenditure? How much of the national capacity for capital formation should be allocated to solving the problem? If there is a divergence between actual and desired infrastructure capital, can the gap be closed without disrupting the growth of other sectors and governmental objectives? These questions are, unfortunately, much easier to pose than to answer. There is only limited information about the size and condition of the stock of public infrastructure capital, and much of the available information has been assembled from the perspective of engineering or planning "needs standards." Needs assessments typically indicate the fraction of the infrastructure stock that falls below a specified (and somewhat arbitrary) level of performance, or indicate how much spending would be required to bring the existing stock up to the specified standard. While sometimes appropriate as a management tool, infrastructure needs estimates are formulated in isolation from other public and private capital needs and are thus ill-suited to the policy debate over national priorities. Despite significant data problems, some general conclusions about the infrastructure dilemma are possible. As a backdrop for these conclusions, the first section of this paper presents an overview of the historical trends in public sector capital formation and infrastructure condition. The following section discusses the factors shaping these trends, with particular attention to the supply and demand components of the capital spending decision. We then consider the question of whether existing trends will insure an adequate supply of public capital, and address the issue of whether a reduced quantity and quality of infrastructure capital may be expected to reduce private sector productivity growth.

Journal ArticleDOI
TL;DR: In this article, the authors assume a country has in place a binding tariff, and is a price taker on world markets in which capital is internationally mobile and unimpeded.

Journal ArticleDOI
TL;DR: In this paper, the authors presented estimates of the rate of return to schooling and differences in these rates of return by schooling level and sector of employment in Rawalpindi, Pakistan.

Journal ArticleDOI
TL;DR: In this paper, the authors examined the effects of output price uncertainty on the optimal investment behavior of a risk-neutral competitive firm with a constant returns to scale production function and found that increased uncertainty will raise the current rate of investment.

Journal ArticleDOI
TL;DR: In this paper, the supply of capital market returns has been studied in the context of the stock market and stock market volatility, and the supply has been shown to be positively correlated with stock market returns.
Abstract: (1984). The Supply of Capital Market Returns. Financial Analysts Journal: Vol. 40, No. 2, pp. 74-80.

Journal ArticleDOI
TL;DR: In this paper, the relation of education and of scientific and technical knowledge developed through R&D to labor productivity growth within the medium term is considered. But, it is unique in using a total capital approach that includes both private and public physical, human, and knowledge capital formation and in use of a medium term model for determining productivity growth that including both demand side and supply side effects.


ReportDOI
TL;DR: In this article, the authors analyzed the determinants of international movements of physical capital in a model with uncertainty and international trade in goods and securities, and found that relative factor abundance, relative labor force size, and relative production riskiness have separate but interrelated influences on the direction of equilibrium capital movements.
Abstract: In this paper we analyze the determinants of international movements of physical capital in a model with uncertainty and international trade in goods and securities. In our model, the world allocation of capital is governed, to some extent, by the asset preferences of risk-averse consumer-investors. In a one-good variant in the spirit of the MacDougall model, we find that relative factor abundance, relative labor force size, and relative production riskiness have separate but interrelated influences on the direction of equilibrium capital movements. These same factors remain important in a two-good version with Heckscher-Ohlin production structure. In this case, the direction of physical capital flow is determinate (unlike in a world of certainty) and may hinge on the identity of the factor that is used intensively in the industry with random technology.

Journal ArticleDOI
TL;DR: The authors generalizes Miller's supply-side equilibrium argument to other forms of capital market imperfections and incompleteness, and shows that if corporations possess a comparative advantage in dealing with these imperfections, they have an incentive to act as financial intermediaries.
Abstract: This paper generalizes Miller's supply-side equilibrium argument to other forms of capital market imperfections and incompleteness If corporations possess a comparative advantage in dealing with these imperfections, they have an incentive to act as financial intermediaries Corporations' attempts to profit from these intermediation activities dictate an optimal capital structure for the corporate sector as a whole, but in equilibrium the capital structure of any single firm is a matter of indifference In addition, the positive role that corporate finance plays in completing the market restores standard perfect market results on asset pricing and the associated portfolio separation properties

Journal ArticleDOI
TL;DR: In this article, the substitutability or complementarity possibilities between capital, labour and energy in the UK industrial sector were investigated, with particular attention to the captial-energy relationship.
Abstract: This paper investigates the substitutability or complementarity possibilities between capital, labour and energy in the UK industrial sector, with particular attention to the captial-energy relationship. It is found, using the translog-cost-function approach, that capital and labour as well as energy and labour are substitutes. However, capital and energy are found to be complements.

Journal ArticleDOI
TL;DR: In this paper, the roles of labor mobility and capital market conditions in the determination of wage contracts were analyzed in an industry in which individual output follows a stochastic growth process with a cumulative effect.
Abstract: The paper considers an industry in which individual output follows a stochastic growth process with a cumulative effect. It analyzes the roles of labor mobility and capital market conditions in the determination of wage contracts. Positive costs of mobility are shown to be necessary for the provision of wage and employment insurance when workers have no access to the capital market. When insurance is provided, wages grow less than average productivity. If the capital market is perfect, wage insurance will be provided even in the absence of costs of mobility. In this case, wages grow faster than average productivity.

Journal ArticleDOI
TL;DR: In this paper, the authors examine why, when a national capital market developed in the United States, regional interest rate differentials existed and seemed to narrow toward 1900, and the changing patterns of banking behavior in the post-Civil War period.
Abstract: We examine (1) why, when a national capital market developed in the United States, regional interest rate differentials existed and seemed to narrow toward 1900, and (2) the changing patterns of banking behavior in the post-Civil War period. We show that a national capital market was established early (1870s), and regional rate differentials were a response to variations and changes in the interest sensitivity of business loan demand. Bank structure was characterized by monopoly, but it declined because of increasing sophistication of business financing decisions, which became more sensitive to open market rates (in particular the stock market) and to loan rates themselves.

Journal ArticleDOI
Firouz Gahvari1
TL;DR: In this paper, the authors show that a compensated tax on income from residential capital would increase the steady-state capital intensity in the industrial sector of the economy and that the wage would rise and the gross-of-tax rate of return to capital in industrial sector would fall.


Journal ArticleDOI
TL;DR: In this paper, the authors developed a channel through which increases in anticipated real interest rates can be "expansionary" for current aggregate labor demand and current output supply by introducing a user cost of capital utilization which confronts the firm with the intertemporal problem of the optimal choices of capital utilisation and depreciation.

01 Oct 1984
TL;DR: In this paper, the authors analyzed changes in the structure of production, employment and capital stock, along with the sources of these changes, in the Soviet economy for the 1959-72 period.
Abstract: This paper analyzes changes in the structure of production, employment and capital stock, along with the sources of these changes, in the Soviet economy for the 1959-72 period. The structure of production, employment and capital stock shifted from agriculture to manufacturing, and especially to heavy manufacturing. The sources of growth in output, employment and capital stock are analyzed in terms of demand factors by utilizing the input-output model framework. The growth of consumption, foreign trade and interindustry linkages became increasingly important sources of output growth over time, while the role of investment expansion became less significant. The analysis of the sources of growth labor and capital requirements shows that labor productivity increased in all sectors while capital productivity decreased in most sectors. These differences in factor productivity are attributable to the Soviet Union's development policy, which emphasized capital accumulation.

Journal ArticleDOI
TL;DR: The implications for efficient allocation of parents' inability to force transfers among siblings are explored in this article, where it is shown that when there are differences in abilities of children within families, such transfers may be necessary to achieve a first-best solution.
Abstract: The implications for efficient allocation of parents' inability to force transfers among siblings are explored. When there are differences in abilities of children within families, such transfers may be necessary to achieve a first-best solution. In the absence of such transfers, a tax on earned income and a subsidy to inheritance are useful second-best tools, whereas subsidies to investments in human capital or physical capital are not desirable.

Journal ArticleDOI
TL;DR: In this article, the authors argue that the discount rate estimate, whether in nominal or real terms, is not a simple task when inflation is expected to undergo changes and that it makes sense to perceive inflation as a neutral process with little or no lasting effects on relative prices and resource alloc-
Abstract: Efforts to incorporate a volatile inflationary environment in capital expenditure analysis have typically led to a prescription such as "Discount nominal cash flows by nominal rates and real flows by real rates."' While this statement is logically consistent and intuitively appealing, it glosses over thorny conceptual issues in devising implementation procedures for capital budgeting decisions. In particular, this paper contends that the discount rate estimate, whether in nominal or real terms, is not a simple task when inflation is expected to undergo changes. From a pedagogic viewpoint, it makes sense to perceive inflation as a neutral process with little or no lasting effects on relative prices and resource alloca-

Journal ArticleDOI
TL;DR: In this article, the authors deal with the international transmission of inflation to a small open economy under fixed exchange rates and facing very interest sensitive capital flows, focusing particular attention on a channel of transmission which has been hitherto largely ignored, namely portfolio capital flows arising from the monetary policy actions of the SOE's reserve currency country.

Journal ArticleDOI
TL;DR: In this article, the effect of changes in capital on the proportion of capital put in savings was investigated experimentally in a computer-controlled, discrete-time, multistage betting game in which each of 28 subjects had to make about 400 betting and savings decisions.