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Displaced Capital

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Author Info
Valerie A. Ramey
Matthew D. Shapiro

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Abstract

This paper studies the efficiency with which physical capital can be reallocated across sectors. It presents a model of a firm selling specialized capital in a thin resale market. The model predicts that the selling price depends not only on the sectoral specificity of capital, but also on the thinness of the market and the discount factor of the firm. It then provides empirical evidence on the sectoral mobility of capital based on equipment-level data from aerospace industry auctions. These data track the flow of used capital across industries, as well as the discounts at which the capital sells. The results suggest substantial sectoral specificity of capital. Capital that flowed out of the sector sold for only one-third of its estimated replacement cost.

* University of Michigan

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Paper provided by Department of Economics, UC San Diego in its series University of California at San Diego, Economics Working Paper Series with number 98-24.

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Date of creation: Oct 1998
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Handle: RePEc:cdl:ucsdec:98-24

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  7. Abel, Andrew B & Eberly, Janice C, 1994. "A Unified Model of Investment under Uncertainty," American Economic Review, American Economic Association, vol. 84(5), pages 1369-84, December. [Downloadable!] (restricted)
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  8. Williamson, Oliver E, 1988. " Corporate Finance and Corporate Governance," Journal of Finance, American Finance Association, vol. 43(3), pages 567-91, July. [Downloadable!] (restricted)
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  10. Lawrence J. Christiano & Jonas D.M. Fisher, 1995. "Tobin's Q and asset returns: implications for business cycle analysis," Working Paper Series, Macroeconomic Issues 95-14, Federal Reserve Bank of Chicago.
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  12. Dixit, Avinash, 1989. "Intersectoral capital reallocation under price uncertainty," Journal of International Economics, Elsevier, vol. 26(3-4), pages 309-325, May. [Downloadable!] (restricted)
  13. Bresnahan, Timothy F & Ramey, Valerie A, 1993. "Segment Shifts and Capacity Utilization in the U.S. Automobile Industry," American Economic Review, American Economic Association, vol. 83(2), pages 213-18, May. [Downloadable!] (restricted)
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  14. Davis, Steven J & Haltiwanger, John C, 1992. "Gross Job Creation, Gross Job Destruction, and Employment Reallocation," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 819-63, August. [Downloadable!] (restricted)
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  15. Ruhm, Christopher J, 1991. "Are Workers Permanently Scarred by Job Displacements?," American Economic Review, American Economic Association, vol. 81(1), pages 319-24, March. [Downloadable!] (restricted)
  16. Coleman Ii, Wilbur John, 1997. "Behavior Of Interest Rates In A General Equilibrium Multisector Model With Irreversible Investment," Macroeconomic Dynamics, Cambridge University Press, vol. 1(01), pages 206-227, January. [Downloadable!]
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  18. Hamilton, James D, 1988. "A Neoclassical Model of Unemployment and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 96(3), pages 593-617, June. [Downloadable!] (restricted)
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  22. Pissarides, Christopher A, 1983. "Efficiency Aspects of the Financing of Unemployment Insurance and Other Government Expenditure," Review of Economic Studies, Blackwell Publishing, vol. 50(1), pages 57-69, January. [Downloadable!] (restricted)
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  24. Ricardo J. Caballero & Eduardo M. R. A. Engel & John C. Haltiwanger, 1995. "Plant-Level Adjustment and Aggregate Investment Dynamics," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1995-2), pages 1-54. [Downloadable!]
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  27. Simon Gilchrist & John C. Williams, 2000. "Putty-Clay and Investment: A Business Cycle Analysis," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 928-960, October. [Downloadable!] (restricted)
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  28. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932.
  29. Abraham, Katharine G & Katz, Lawrence F, 1986. "Cyclical Unemployment: Sectoral Shifts or Aggregate Disturbances?," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 507-22, June. [Downloadable!] (restricted)
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  30. Nadiri, M Ishaq & Rosen, Sherwin, 1969. "Interrelated Factor Demand Functions," American Economic Review, American Economic Association, vol. 59(4), pages 457-71, Part I Se. [Downloadable!] (restricted)
  31. Shleifer, Andrei & Vishny, Robert W, 1992. " Liquidation Values and Debt Capacity: A Market Equilibrium Approach," Journal of Finance, American Finance Association, vol. 47(4), pages 1343-66, September. [Downloadable!] (restricted)
  32. Dale T. Mortensen, 1982. "The Matching Process as a Noncooperative Bargaining Game," NBER Chapters, in: The Economics of Information and Uncertainty, pages 233-258 National Bureau of Economic Research, Inc. [Downloadable!]
  33. Diamond, Peter A, 1981. "Mobility Costs, Frictional Unemployment, and Efficiency," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 798-812, August. [Downloadable!] (restricted)
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  34. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Blackwell Publishing, vol. 61(3), pages 397-415, July. [Downloadable!] (restricted)
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  35. Jeremy Greenwood & Zvi Hercowitz & Per Krusell, 1992. "Macroeconomic implications of investment-specific technological change," Discussion Paper / Institute for Empirical Macroeconomics 76, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  36. Miquel Faig, 1997. "INVESTMENT IRREVERSIBILITY IN GENERAL EQUILIBRIUM: Capital Accumulation, Interest Rates, and the Risk Premium," Working Papers faig-97-01, University of Toronto, Department of Economics. [Downloadable!]
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Steven J. Davis & John Haltiwanger, 1999. "On the Driving Forces behind Cyclical Movements in Employment and Job Reallocation," American Economic Review, American Economic Association, vol. 89(5), pages 1234-1258, December. [Downloadable!] (restricted)
    Other versions:
  2. Nick Bloom, 2006. "The Impact of Uncertainty Shocks: Firm Level Estimation and a 9/11 Simulation," CEP Discussion Papers dp0718, Centre for Economic Performance, LSE. [Downloadable!]
  3. Andrew Figura, 2002. "Is reallocation related to the cycle? A look at permanent and temporary job flows," Finance and Economics Discussion Series 2002-16, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  4. Miquel Faig, 1999. "Asset Pricing, Growth, And The Business Cycle With Irreversible Investment," Working Papers faig-98-02, University of Toronto, Department of Economics. [Downloadable!]
  5. Adela Luque, 2002. "An Option-Value Approach To Technology Adoption In U.S. Manufacturing: Evidence From Microdata," Economics of Innovation and New Technology, Taylor and Francis Journals, vol. 11(6), pages 543-568, January. [Downloadable!] (restricted)
  6. Andrew Figura, 2002. "The cyclical behavior of short-term and long-term job flows," Finance and Economics Discussion Series 2002-12, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  7. Werner Hölzl, 2005. "Tangible and intangible sunk costs and the entry and exit of firms in a small open economy: the case of Austria," Applied Economics, Taylor and Francis Journals, vol. 37(21), pages 2429-2443, December. [Downloadable!] (restricted)
  8. Nicholas Bloom, 2007. "The Impact of Uncertainty Shocks," NBER Working Papers 13385, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Petri Böckerman & Mika Maliranta, 2002. "Regional Disparties in Gross Job and the Worker Flows in Finland," Discussion Papers 716, The Research Institute of the Finnish Economy. [Downloadable!]
  10. Petri Böckerman & Mika Maliranta, 2001. "Regional disparities in gross job and worker flows in Finland," Finnish Economic Papers, Finnish Economic Association, vol. 14(2), pages 84-103, Autumn. [Downloadable!]
  11. Berthold Herrendorf & Akos Valentinyi, 2002. "Determinacy Through Intertemporal Capital Adjustment Costs," IEHAS Discussion Papers 0209, Institute of Economics, Hungarian Academy of Sciences. [Downloadable!]
  12. Se Jik Kim & Mark R. Stone, 2000. "Corporate Leverage, Bankcruptcy and Output Adjustment in Post-Crisis East Asia," Microeconomics Working Papers 143, East Asian Bureau of Economic Research. [Downloadable!]
  13. Yu-Fu Chen & Michael Funke, 2009. "Booms, Recessions and Financial Turmoil: A Fresh Look at Investment Decisions under Cyclical Uncertainty," Discussion Papers 225, University of Dundee, Economic Studies. [Downloadable!]
    Other versions:
  14. Michele Boldrin & Lawrence J. Christiano & Jonas D. M. Fisher, 2000. "Habit persistence, asset returns and the business cycle," Staff Report 280, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  15. Ricardo J. Caballero & Mohamad L. Hammour, 2000. "Creative Destruction and Development: Institutions, Crises, and Restructuring," NBER Working Papers 7849, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  16. Asplund, Marcus, 1995. "What Fraction of a Capital Investment is Sunk Cost?," Working Paper Series in Economics and Finance 68, Stockholm School of Economics, revised 24 Sep 1999. [Downloadable!]
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  17. Berthold Herrendorf & Akos Valentinyi, . "On the Stability of the Two-Sector Neoclassical Growth Model with Externalities," Working Papers 2167721, Department of Economics, W. P. Carey School of Business, Arizona State University. [Downloadable!]
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  18. Russell W. Cooper & John C. Haltiwanger, 2000. "On the Nature of Capital Adjustment Costs," NBER Working Papers 7925, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  19. Berthold Herrendorf & Akos Valentinyi, 2002. "Neoclassical Growth Model with Externalities," IEHAS Discussion Papers 0203, Institute of Economics, Hungarian Academy of Sciences. [Downloadable!]
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