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Capital utilization and capital accumulation: Theory and evidence
Author(s) -
Shapiro Matthew D.
Publication year - 1986
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.3950010302
Subject(s) - cost of capital , physical capital , capital intensity , capital (architecture) , fixed capital , economics , capital deepening , financial capital , monetary economics , economic capital , capital formation , microeconomics , human capital , market economy , incentive , archaeology , profit (economics) , history
A firm may acquire additional capital input by purchasing new capital or by increasing the utilization of its current capital. The margin between capital accumulation and capital utilization is studied in a model of dynamic factor demand where the firm chooses capital, labour and their rates of utilization. A direct measure of capital utilization‐the work week of capital‐is incorporated into the theory and estimates. The estimates imply that capital stock is costly to adjust while the work week of capital is essentially costless to adjust. The estimated response of the capital stock to changes in its price and in the required rate of return is more rapid than found in other estimates.