The Substitution of Capital for Capital

Boddy, Raford; Gort, Michael

doi:10.2307/1925715

Cited by 24 publications

(14 citation statements)

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“…As discussed in an early literature by Feldstein and Rotschild (1974) and Feldstein and Foot (1971), constant depreciation with differing rates across goods can create "lumpiness" in investment and "echoes" of past investment in future decisions. Boddy and Gort (1971) noted early that there is evidence of capital heterogeneity across sectors and more recent work by Goolsbee and Gross (1997) has demonstrated how important capital heterogeneity for the study of investment at the micro level.…”

Section: Introductionmentioning

confidence: 99%

The Business Cycle, Financial Performance, and the Retirement of Capital Goods

Goolsbee

1998

Review of Economic Dynamics

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The neoclassical investment literature assumes that capital is homogenous, lives forever and has a constant depreciation rate. More recent theories of investment have shown that when there are distinct capital vintages with embodied technologies, depreciation and capital retirement become economic decisions and this raises important problems with existing empirical work. Direct testing of these issues, however, has been rare because of the lack of micro data. This paper uses new data on the service lives of individual capital goods in the airline industry to empirically examine the impact that economic factors have on capital retirement. The results strongly support the view that retirement is fundamentally an economic decision. Retirement is much more likely in recessions, when the cost of capital is low, a firm has good financial performance. Factor prices and industry regulation are also important. Since many of these factors also influence capital expenditures, the results imply that estimates from the conventional investment literature such as the effect of the cost of capital or financial performance may substantially overstate the case since their impact on net investment may be much more modest than their impact on gross investment. The results also have implications for the measurement of productivity. _____________I wish to thank

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Section: Introductionmentioning

confidence: 99%

The Business Cycle, Financial Performance, and the Retirement of Capital Goods

Goolsbee

1998

Review of Economic Dynamics

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“…manufacturing 1929-1968. In contrast Boddy and Gort (1971) rejected the hypothesis of equipment-structures separability. Labour and equipment are substitutes in all studies reported in Table 6.…”

Section: Comparison With Other Modelsmentioning

confidence: 86%

The structure of production in ten Canadian industries

Delorme¹,

Lester²

1990

Empirical Economics

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This paper presents an econometric anatysis of the structure of production in ten Canadian industries. The analysis is undertaken using a static cost function and fairly standard econometric techniques. There are two unusual features of the analysis: capital is disaggregated into equipment and structures; and inventories of materials are included as a factor of production. These features facilitate a more complete analysis of the impact of changes to the costs of factors of production. The Key Empirical Findings are:(1) Capital is separable from other inputs in only four of the ten industries examined. This implies disaggregation of the capital stock is import.ant because, in the majority of industries examined, changes in the relative price of equipment and structures influence the demand for all factors of production even if the price of aggregate capital is unchanged.(2) Including inventories as a factor of production is important since it increases the explanatory power of the equations and causes significant changes in the substitution patterns among other

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“…Empirical support for this expec tation has been provided by R. Body and M. Gort, who report that the proportion of equipment relative to the proportion of structures in total investment tends to decline in expansions and increase in contractions [3].…”

Section: B)mentioning

confidence: 95%