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Displaced Capital

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  • Ramey, Valerie A
  • SHAPIRO, MATTHEW D

Abstract

This paper studies the efficiency with which physical capital can be reallocated across sectors. It presents a model of a firm selling specialized capital in a thin resale market. The model predicts that the selling price depends not only on the sectoral specificity of capital, but also on the thinness of the market and the discount factor of the firm. It then provides empirical evidence on the sectoral mobility of capital based on equipment-level data from aerospace industry auctions. These data track the flow of used capital across industries, as well as the discounts at which the capital sells. The results suggest substantial sectoral specificity of capital. Capital that flowed out of the sector sold for only one-third of its estimated replacement cost.

Suggested Citation

  • Ramey, Valerie A & SHAPIRO, MATTHEW D, 1998. "Displaced Capital," University of California at San Diego, Economics Working Paper Series qt49k7n14z, Department of Economics, UC San Diego.
  • Handle: RePEc:cdl:ucsdec:qt49k7n14z
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    Cited by:

    1. Kandil, Magda, 2009. "Demand-side stabilization policies: What is the evidence of their potential?," Journal of Economics and Business, Elsevier, vol. 61(3), pages 261-276.
    2. Asplund, Marcus, 2000. "What Fraction of a Capital Investment Is Sunk Costs?," Journal of Industrial Economics, Wiley Blackwell, vol. 48(3), pages 287-304, September.
    3. Yu-Fu Chen & Michael Funke, 2010. "Booms, Recessions And Financial Turmoil: A Fresh Look At Investment Decisions Under Cyclical Uncertainty," Scottish Journal of Political Economy, Scottish Economic Society, vol. 57(s1), pages 290-317, July.
    4. Miquel Faig, 1999. "Asset Pricing, Growth, And The Business Cycle With Irreversible Investment," Working Papers faig-98-02, University of Toronto, Department of Economics.
    5. Eisfeldt, Andrea L. & Rampini, Adriano A., 2007. "New or used? Investment with credit constraints," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2656-2681, November.
    6. Herrendorf, Berthold & Valentinyi, Akos, 2006. "On the stability of the two-sector neoclassical growth model with externalities," Journal of Economic Dynamics and Control, Elsevier, vol. 30(8), pages 1339-1361, August.
    7. Gower, Luke & Wilson, Dominic, 2000. "Displaced Capital and Japanese Economic Growth," Journal of the Japanese and International Economies, Elsevier, vol. 14(2), pages 105-120, June.
    8. Andrew Figura, 2002. "Is reallocation related to the cycle? A look at permanent and temporary job flows," Finance and Economics Discussion Series 2002-16, Board of Governors of the Federal Reserve System (U.S.).
    9. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, May.
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    12. Adela Luque, 2002. "An option-value approach to technology adoption in U.S. manufacturing: Evidence from microdata," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 11(6), pages 543-568.
    13. Böckerman, Petri & Maliranta, Mika, 2002. "Regional Disparties in Gross Job and the Worker Flows in Finland," Discussion Papers 716, The Research Institute of the Finnish Economy.
    14. Nick Bloom, 2006. "The Impact of Uncertainty Shocks: Firm Level Estimation and a 9/11 Simulation," CEP Discussion Papers dp0718, Centre for Economic Performance, LSE.
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    More about this item

    Keywords

    physical capital;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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