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Tobin's Q, economic rents, and the optimal stock of capital

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  • Richard W. Kopcke

Abstract

The correspondence between the demand for capital and various measures of Tobin?s q often is tenuous (Abel and Blanchard 1986; Hayashi 1982), at times even perverse. Among the possible explanations for this apparent challenge to the q theory of investment, this paper considers the consequences of allowing the return on capita] to vary with the scale of production. When enterprises earn economic rents on inframarginal investments, the q theory of investment does not claim that changes in the optimal stock of capital must correspond consistently to changes in marginal q.

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  • Richard W. Kopcke, 1992. "Tobin's Q, economic rents, and the optimal stock of capital," Working Papers 92-3, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbwp:92-3
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