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The Proportionality Hypothesis in Capital Theory: An Assessment of the Literature

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Author Info
Bitros, George

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Abstract

It is found that the hypothesis of a constant replacement investment capital stock ratio has several fundamental shortcomings. It conflicts with most of the available theoretical and empirical evidence. It is alien to researchers in other fields of economics and related areas; and, perhaps most importantly, it has restrained progress in economic theory and econometric applications based on more realistic conceptualizations of the time structure of capital. On these grounds it is concluded that its abandonment is long overdue.

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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8752.

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Date of creation: 2008
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Handle: RePEc:pra:mprapa:8752

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Related research
Keywords: Capital longevity replacement depreciation maintenance utilization obso-lescence

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Find related papers by JEL classification:
E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity

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  1. Lioukas, S K, 1982. "The Cyclical Behaviour of Capital Retirement: Some New Evidence," Applied Economics, Taylor and Francis Journals, vol. 14(1), pages 73-79, February.
  2. Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September. [Downloadable!] (restricted)
  3. Russell Cooper & John Haltiwanger, 1993. "The Aggregate Implications of Machine Replacement: Theory and Evidence," NBER Working Papers 3552, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Nickell, Stephen, 1975. "A closer look at replacement investment," Journal of Economic Theory, Elsevier, vol. 10(1), pages 54-88, February. [Downloadable!] (restricted)
  5. Ian M. Dobbs, 2004. "Replacement Investment: Optimal Economic Life Under Uncertainty," Journal of Business Finance & Accounting, Blackwell Publishing, vol. 31(5-6), pages 729-757. [Downloadable!] (restricted)
  6. Hartman, Joseph C., 2004. "Multiple asset replacement analysis under variable utilization and stochastic demand," European Journal of Operational Research, Elsevier, vol. 159(1), pages 145-165, November. [Downloadable!] (restricted)
  7. Barro, Robert J, 1972. "Monopoly and Contrived Depreciation," Journal of Political Economy, University of Chicago Press, vol. 80(3), pages 598-602, May-June. [Downloadable!] (restricted)
  8. Malcomson, James M., 1975. "Replacement and the rental value of capital equipment subject to obsolescence," Journal of Economic Theory, Elsevier, vol. 10(1), pages 24-41, February. [Downloadable!] (restricted)
  9. 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. [Downloadable!] (restricted)
  10. Bulow, Jeremy, 1986. "An Economic Theory of Planned Obsolescence," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 729-49, November. [Downloadable!] (restricted)
  11. Bitros, George & Kelejian, Harry H, 1977. "A Note on the Variability of the Replacement Investment Capital Stock Ratio: Reply," The Review of Economics and Statistics, MIT Press, vol. 59(4), pages 510-13, November. [Downloadable!] (restricted)
  12. McHugh, Richard & Lane, Julia, 1987. "The Age of Capital, the Age of Utilized Capital, and Tests of the Embodiment Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 69(2), pages 362-67, May. [Downloadable!] (restricted)
    Other versions:
  13. Austan Goolsbee, 1998. "The Business Cycle, Financial Performance, and the Retirement of Capital Goods," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 474-496, April. [Downloadable!] (restricted)
    Other versions:
  14. Barnhart, Scott W. & Miller, Edward M., 1990. "Problems in the estimation of equations containing perpetual inventory measured capital," Journal of Macroeconomics, Elsevier, vol. 12(4), pages 637-651. [Downloadable!] (restricted)
  15. Cowing, Thomas G & Smith, V Kerry, 1977. "A Note on the Variability of the Replacement Investment Capital Stock Ratio," The Review of Economics and Statistics, MIT Press, vol. 59(2), pages 238-43, May. [Downloadable!] (restricted)
  16. BOUCEKKINE, Raouf & RUIZ-TAMARIT Ramon, 2001. "Capital Maintenance and Investment : Complements or Substitutes ?," Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) Discussion Paper 2001012, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES). [Downloadable!]
  17. 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. [Downloadable!] (restricted)
  18. Parks, Richard W, 1974. "The Demand and Supply of Durable Goods and Durability," American Economic Review, American Economic Association, vol. 64(1), pages 37-55, March. [Downloadable!] (restricted)
  19. Fraser, Jane M. & Posey, Jack W., 1989. "A framework for replacement analysis," European Journal of Operational Research, Elsevier, vol. 40(1), pages 43-57, May. [Downloadable!] (restricted)
  20. Waldman, Michael, 1993. "A New Perspective on Planned Obsolescence," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 273-83, February. [Downloadable!] (restricted)
  21. Mann, Duncan P., 1992. "Durable goods monopoly and maintenance," International Journal of Industrial Organization, Elsevier, vol. 10(1), pages 65-79, March. [Downloadable!] (restricted)
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This page was last updated on 2008-11-18.


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