Working Paper: NBER ID: w2571
Authors: Jeffrey I. Bernstein; M. Ishaq Nadiri
Abstract: The purpose of this paper is to analyze the determinants of capital durability and utilization and their interdependence with investment decisions. The approach is based on the view that the flow of undepreciated capital is an output to be used in future production. At each date capital and non-capital inputs are combined to produce current output and the capital inputs to be used for future production. Thus capital accumulation occurs in a joint product context as two kinds of output are produced, one type for current sale and one type for future production. Another issue investigated in this paper concerns the allocation of resources within a firm between installing and utilizing capital and labor training activities. Often this problem is ignored in the theory of investment, not only because depreciation is exogenous, but also due to the treatment of labor as a variable factor of production. However, it is well recognized that firms cannot costlessly adjust labor. Thus the second purpose of this paper is to analyze the intertemporal relationship between the durability of capital and the growth rate of labor.
Keywords: capital utilization; investment decisions; capital depreciation; labor growth
JEL Codes: D24; E22; O32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| wage and interest rates (J31) | capital utilization adjustment (D24) |
| capital utilization (G31) | growth rates of capital and labor (O40) |
| wage rate (J31) | capital utilization (G31) |
| wage rate (J31) | growth rates of capital and labor (O40) |
| capital utilization adjustment (D24) | capital and labor accumulation rates (E22) |
| unanticipated demand-side shocks (E39) | capital utilization and growth rates (D25) |