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Australian Business Investment: A New Look at the Neoclassical Approach *
Author(s) -
KOHLI ULRICH,
RYAN CHRISTOPHER J.
Publication year - 1986
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.1986.tb00910.x
Subject(s) - economics , return of capital , renting , investment (military) , capital (architecture) , capital good , microeconomics , portfolio , return on investment , capital budgeting , capital intensity , investment performance , production (economics) , financial economics , profit (economics) , archaeology , public good , politics , project appraisal , political science , law , history
This paper attempts to reconcile neoclassical theory with Australian investment data. We argue that, by focusing almost exclusively on the demand for capital services, neoclassical investment theory neglects two related decisions: the decision to own the existing capital stock, and the decision to produce new capital goods. We propose a simple model of investment behaviour that integrates production decisions with portfolio decisions. Careful consideration is given to the determination of the price of capital, the rental price of capital, and the return on capital. The model is estimated by FIML, and a number of simulation results are reported.