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Modeling and measuring organization capital

  • Andrew Atkeson
  • Patrick J. Kehoe

Manufacturing plants have a clear life cycle: they are born small, grow substantially as they age, and eventually die. Economists have long thought that this life cycle is driven by the accumulation of plant-specific knowledge, here called organization capital. Theory suggests that where plants are in the life cycle determines the size of the payments, or dividends, plant owners receive from organization capital. These payments are compensation for the interest cost to plant owners of waiting for their plants to grow. We build a quantitative growth model of the life cycle of plants and use it, along with U.S. data, to infer the overall size of these payments. They turn out to be quite large—more than one-third the size of the payments plant owners receive from physical capital, net of new investment, and more than 40% of payments from all forms of intangible capital.

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Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 291.

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Date of creation: 2005
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Publication status: Published in Journal of Political Economy (Vol. 113, No. 5, October 2005, pp. 1026-1053)
Handle: RePEc:fip:fedmsr:291
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  1. J. Bradford Jensen & Robert H. McGuckin & Kevin J. Stiroh, 2001. "The Impact Of Vintage And Survival On Productivity: Evidence From Cohorts Of U.S. Manufacturing Plants," The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 323-332, May.
  2. Robert H. Topel, 1990. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," NBER Working Papers 3294, National Bureau of Economic Research, Inc.
  3. Ericson, Richard & Pakes, Ariel, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 53-82, January.
  4. Steven J. Davis & John C. Haltiwanger & Scott Schuh, 1998. "Job Creation and Destruction," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262540932, June.
  5. Hopenhayn, Hugo & Rogerson, Richard, 1993. "Job Turnover and Policy Evaluation: A General Equilibrium Analysis," Journal of Political Economy, University of Chicago Press, vol. 101(5), pages 915-38, October.
  6. Jovanovic, Boyan & Moffitt, Robert, 1988. "An Estimate Of A Sectoral Model Of Labor Mobility," Working Papers 88-32, C.V. Starr Center for Applied Economics, New York University.
  7. Bahk, Byong-Hong & Gort, Michael, 1993. "Decomposing Learning by Doing in New Plants," Journal of Political Economy, University of Chicago Press, vol. 101(4), pages 561-83, August.
  8. Rosen, Sherwin, 1972. "Learning by Experience as Joint Production," The Quarterly Journal of Economics, MIT Press, vol. 86(3), pages 366-82, August.
  9. Prescott, Edward C & Visscher, Michael, 1980. "Organization Capital," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 446-61, June.
  10. Atkenson, Andrew & Khan, Aubhik & Ohanian, Lee, 1996. "Are data on industry evolution and gross job turnover relevant for macroeconomics?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 44(1), pages 215-239, June.
  11. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-90, October.
  12. Nelson, Richard R & Winter, Sidney G, 1982. "The Schumpeterian Tradeoff Revisited," American Economic Review, American Economic Association, vol. 72(1), pages 114-32, March.
  13. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
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