Capital Utilization and Capital Accumulation: Theory and Evidence
AbstractA firm may acquire additional capital input by purchasing new capital or by increasing the utilization of its current capital. The margin between capita accumulation and capital utilization is studied in a model of dynamic factor demand where the firm chooses capital, labor, and their rates of utilization. A direct measure of capital utilization -- the work week of capital -- is incorporated into the theory and estimates. The methodology advocated by Hansen and Singleton (1982) is used to obtain estimates of the model's parameters. This methodology allows the firm's decision problem to depend on expected values of future endogenous and exogenous functional form or the distribution of shocks to the system. The estimates imply that capital stock is costly to adjust while the work week of capital is essentially costless to adjust. Hence, the work week of capital overshoots the steady state when innovations in policy or other shocks change the demand for capital. Short run variation in the demand for capital is met by changing utilization. Long run variation is met by changing the stock. The estimated response of the capital stock to changes in its price and in the required rate of return is substantial and it takes place more quickly than found in other estimates. These results provide an important challenge to the view that input prices and required rates of return are empirically unimportant in models of the demand for capital.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 736.
Length: 54 pages
Date of creation: Jan 1985
Date of revision:
Publication status: Published in Journal of Applied Econometrics (1986), 1: 211-234
Note: CFP 662.
Contact details of provider:
Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA
Phone: (203) 432-3702
Fax: (203) 432-6167
Web page: http://cowles.econ.yale.edu/
More information through EDIRC
Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
Other versions of this item:
- Shapiro, Matthew D, 1986. "Capital Utilization and Capital Accumulation: Theory and Evidence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 1(3), pages 211-34, July.
- Matthew D. Shapiro, 1987. "Capital Utilization and Capital Accumulation: Theory and Evidence," NBER Working Papers 1900, National Bureau of Economic Research, Inc.
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.:
- Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-11, July.
- Kennan, John, 1979. "The Estimation of Partial Adjustment Models with Rational Expectations," Econometrica, Econometric Society, vol. 47(6), pages 1441-55, November.
- Thomas J. Sargent, 1978.
"Estimation of dynamic labor demand schedules under rational expectations,"
27, Federal Reserve Bank of Minneapolis.
- Sargent, Thomas J, 1978. "Estimation of Dynamic Labor Demand Schedules under Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 1009-44, December.
- Rotemberg, Julio J, 1984. "Interpreting the Statistical Failures of Some Rational Expectations Macroeconomic Models," American Economic Review, American Economic Association, vol. 74(2), pages 188-93, May.
- Chow, Gregory C & Lin, An-loh, 1971.
"Best Linear Unbiased Interpolation, Distribution, and Extrapolation of Time Series by Related Series,"
The Review of Economics and Statistics,
MIT Press, vol. 53(4), pages 372-75, November.
- Tom Doan, . "CHOWLIN: RATS procedure to distribute a series to a higher frequency using related series," Statistical Software Components RTS00036, Boston College Department of Economics.
- Tom Doan, . "DISAGGREGATE: RATS procedure to implement general disaggregation (interpolation/distribution) procedure," Statistical Software Components RTS00050, Boston College Department of Economics.
- Richard Meese, 1980.
"Dynamic factor demand schedules for labor and capital under rational expectations,"
International Finance Discussion Papers
153, Board of Governors of the Federal Reserve System (U.S.).
- Meese, Richard, 1980. "Dynamic factor demand schedules for labor and capital under rational expectations," Journal of Econometrics, Elsevier, vol. 14(1), pages 141-158, September.
- Matthew D. Shapiro, 1987.
"The Dynamic Demand for Capital and Labor,"
NBER Working Papers
1899, National Bureau of Economic Research, Inc.
- Fischer, Stanley, 1980. "Dynamic inconsistency, cooperation and the benevolent dissembling government," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 93-107, May.
- Andrew B. Abel & Olivier J. Blanchard, 1987.
"The Present Value of Profits and Cyclical Movements in Investment,"
NBER Working Papers
1122, National Bureau of Economic Research, Inc.
- Abel, Andrew B & Blanchard, Olivier J, 1986. "The Present Value of Profits and Cyclical Movements in Investment," Econometrica, Econometric Society, vol. 54(2), pages 249-73, March.
- Peter M. Garber & Robert G. King, 1983. "Deep Structral Excavation? A Critique of Euler Equation Methods," NBER Technical Working Papers 0031, National Bureau of Economic Research, Inc.
- Betancourt,Roger R. & Clague,Christopher K., 2008. "Capital Utilization," Cambridge Books, Cambridge University Press, number 9780521070287, December.
- Robert S. Pindyck & Julio J. Rotemberg, 1982.
"Dynamic Factor Demands Under Rational Expectations,"
NBER Working Papers
1015, National Bureau of Economic Research, Inc.
- Pindyck, Robert S & Rotemberg, Julio J, 1983. " Dynamic Factor Demands under Rational Expectations," Scandinavian Journal of Economics, Wiley Blackwell, vol. 85(2), pages 223-38.
- Pindyck, Robert S. & Rotemberg, Julio., 1982. "Dynamic factor demands under rational expectations," Working papers 1351-82., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Feldstein, Martin S & Foot, David K, 1971. "The Other Half of Gross Investment: Replacement and Modernization Expenditures," The Review of Economics and Statistics, MIT Press, vol. 53(1), pages 49-58, February.
- Bernanke, Ben S, 1983. "The Determinants of Investment: Another Look," American Economic Review, American Economic Association, vol. 73(2), pages 71-75, May.
- 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.
- Lawrence H. Summers, 1981. "Taxation and Corporate Investment: A q-Theory Approach," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 67-140.
- Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
- Winston, Gordon C, 1974. "The Theory of Capital Utilization and Idleness," Journal of Economic Literature, American Economic Association, vol. 12(4), pages 1301-20, December.
- Hansen, Lars Peter & Singleton, Kenneth J, 1982. "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 50(5), pages 1269-86, September.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Glena Ames).
If references are entirely missing, you can add them using this form.