Optimal Allocation of Physical and Skills Capital in Services Production
Abstract”Software/ Skills” capital differs from usual physical capital (or hard- ware) in the sense that it is non-rival and can be replicated at a cost (e.g. patent fee or training costs). A basic model of production is developed which involves production sector and training or replication sector (which produces skills). Using a 2 period production model, the paper finds that in sectors where the objective is output maximization (e.g. government services or health care) - There exists an optimal ratio of investment in physical capital and in- vestment in skills-capital depending on the state of technology and already existing stocks. In a capital-rich economy, a higher proportion of skills is allocated to pro- duction sector and a higher proportion of investment is allocated to training sector compared to capital-scarce economy . During high-investment periods, a higher share of investment goes to physical capital while a lower share of skills goes into production sector (compared to low-investment period). Initial stock of skills, does not have any affect on these allocation-ratios.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 8999.
Date of creation: Jan 2007
Date of revision:
Find related papers by JEL classification:
- L8 - Industrial Organization - - Industry Studies: Services
- E23 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Production
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
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