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Uncertainty in the Austrian Theory of Capital

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  • Stefan W. Schmitz

    (ICE, Austrian Academy of Sciences)

Abstract

This paper is based on the traditional Austrian Theory of Capital which deals with expected values of future returns of investments over various periods of time. The longer the time period that elapses between the beginning of a production process and its end, the higher the (expected) productivity must be due to positive time preferences of individuals. This paper focuses on the uncertainty of future returns and on uncertainty preferences, instead. Based on the Hayekian idea of the dispersion of knowledge in society, it will be shown that there is a systematic relationship between the structure of capital and uncertainty. This result will be derived for a production process characterized by complete vertical integration and one which is not completely vertically integrated. The distinction between these two settings is crucial, if one accepts the distinction between an individual and a social period of production and the planning horizon which are introduced in this paper.

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File URL: http://128.118.178.162/eps/mhet/papers/0211/0211001.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Method and Hist of Econ Thought with number 0211001.

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Length: 37 pages
Date of creation: 04 Nov 2002
Date of revision:
Handle: RePEc:wpa:wuwpmh:0211001

Note: Type of Document - pdf; prepared on wordfile on mac; pages: 37; figures: none. Submitted to Review of Austrian Economics
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Web page: http://128.118.178.162

Related research

Keywords: Austrian Economics; Uncertainty; Capital Theory;

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References

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  1. Epstein, Larry G & Wang, Tan, 1994. "Intertemporal Asset Pricing Under Knightian Uncertainty," Econometrica, Econometric Society, vol. 62(2), pages 283-322, March.
  2. Israel M. Kirzner, 1997. "Entrepreneurial Discovery and the Competitive Market Process: An Austrian Approach," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 60-85, March.
  3. Kirsten Foss & Nicolai J. Foss & Peter G. Klein & Sandra K. Klein, 2002. "Heterogeneous Capital, Entrepreneurship, and Economic Organization," DRUID Working Papers 02-01, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  4. Dow, James & Werlang, Sergio Ribeiro da Costa, 1992. "Uncertainty Aversion, Risk Aversion, and the Optimal Choice of Portfolio," Econometrica, Econometric Society, vol. 60(1), pages 197-204, January.
  5. Hoppe, Hans-Hermann, 1997. " On Certainty and Uncertainty, or: How Rational Can Our Expectations Be?," The Review of Austrian Economics, Springer, vol. 10(1), pages 49-78.
  6. Lewin, Peter, 1997. "Rothbard and Mises on Interest: An Exercise in Theoretical Purity," Journal of the History of Economic Thought, Cambridge University Press, vol. 19(01), pages 141-159, March.
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Cited by:
  1. Robert Mulligan, 2006. "Accounting for the business cycle: Nominal rigidities, factor heterogeneity, and Austrian capital theory," The Review of Austrian Economics, Springer, vol. 19(4), pages 311-336, December.
  2. George Bitros, 2008. "Why the structure of capital and the useful lives of its components matter: A test based on a model of Austrian descent," The Review of Austrian Economics, Springer, vol. 21(4), pages 301-328, December.

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