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Intertemporal Constraints, Shadow Prices, and Financial Asset Values

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  • Robert S. Chirinko

Abstract

The conditions under which the unobserved shadow price of capital can be equated to the financial value of the firm have been developed in an important paper by Hayashi (1982). Employing a more powerful analytic method, this paper reexamines the shadow price- asset value relation in a model with a general set of intertemporal constraints. For a model with one capital good, a general relation between shadow prices and asset values is derived, and restrictive assumptions implicit in previous work are highlighted. Of particular importance is the relation between the marginal and average survival rates of capital, and the critical role of geometric depreciation. The impact of a discrete-time framework in specifying and interpreting econometric models is also explored.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2247.

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Date of creation: May 1987
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Handle: RePEc:nbr:nberwo:2247

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  1. Fumio Hayashi, 1981. "Tobin's Marginal q and Average a : A Neoclassical Interpretation," Discussion Papers 457, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
  3. Hansen, Lars Peter & Sargent, Thomas J., 1980. "Formulating and estimating dynamic linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 7-46, May.
  4. 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.
  5. Smirlock, Michael & Gilligan, Thomas & Marshall, William, 1984. "Tobin's q and the Structure-Performance Relationship," American Economic Review, American Economic Association, vol. 74(5), pages 1051-60, December.
  6. Lindenberg, Eric B & Ross, Stephen A, 1981. "Tobin's q Ratio and Industrial Organization," The Journal of Business, University of Chicago Press, vol. 54(1), pages 1-32, January.
  7. Michael A. Salinger, 1984. "Tobin's q, Unionization, and the Concentration-Profits Relationship," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 159-170, Summer.
  8. Kamien, Morton I & Muller, E, 1976. "Optimal Control with Integral State Equations," Review of Economic Studies, Wiley Blackwell, vol. 43(3), pages 469-73, October.
  9. Brunner, Karl & Meltzer, Allan H., 1976. "The Phillips curve," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 1-18, January.
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