Why the structure of capital and the useful lives of its components matter: A test based on a model of Austrian descent

Why the structure of capital and the useful lives of its components matter: A test based on a... This paper centers on the structure of capital and the useful lives of its components by considering an economy with two representative firms, one producing a necessity and another producing a luxury. This difference determines their reinvestment opportunities. Therefore, while the one applies replacement, the other adopts scrapping. However, as these capital policies lead to different service lives, the analysis confronts the issues raised by Miller (Review of Income and Wealth 29:284–296, 1982, Review of Income and Wealth 36:67–82, 1990) and deals with them by drawing on Haavelmo’s (A study in the theory of investment, Chicago: The University of Chicago Press, 1960) suggestions regarding the aggregation of capital. Among other findings, it turns out that the simulation results are highly robust, thus demonstrating that real-world implications may be even stronger than strictly suggested by the model. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Review of Austrian Economics Springer Journals

Why the structure of capital and the useful lives of its components matter: A test based on a model of Austrian descent

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Publisher
Springer US
Copyright
Copyright © 2008 by Springer Science+Business Media, LLC
Subject
Economics; Public Finance; Political Science; History of Economic Thought/Methodology
ISSN
0889-3047
eISSN
1573-7128
D.O.I.
10.1007/s11138-008-0049-1
Publisher site
See Article on Publisher Site

Abstract

This paper centers on the structure of capital and the useful lives of its components by considering an economy with two representative firms, one producing a necessity and another producing a luxury. This difference determines their reinvestment opportunities. Therefore, while the one applies replacement, the other adopts scrapping. However, as these capital policies lead to different service lives, the analysis confronts the issues raised by Miller (Review of Income and Wealth 29:284–296, 1982, Review of Income and Wealth 36:67–82, 1990) and deals with them by drawing on Haavelmo’s (A study in the theory of investment, Chicago: The University of Chicago Press, 1960) suggestions regarding the aggregation of capital. Among other findings, it turns out that the simulation results are highly robust, thus demonstrating that real-world implications may be even stronger than strictly suggested by the model.

Journal

The Review of Austrian EconomicsSpringer Journals

Published: May 24, 2008

References

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