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Displaced Capital

  • Valerie A. Ramey
  • Matthew D. Shapiro

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.

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File URL: http://www.nber.org/papers/w6775.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6775.

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Date of creation: Oct 1998
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Publication status: published as Valerie A. Ramey & Matthew D. Shapiro, 2001. "Displaced Capital: A Study of Aerospace Plant Closings," Journal of Political Economy, University of Chicago Press, vol. 109(5), pages 958-992, October.
Handle: RePEc:nbr:nberwo:6775
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