Capital gain in a neo-austrian framework

Abstract

This article develops a general equilibrium asset pricing model with Hicks' neo-Austrian production technology, whereby entrepreneurs maximize their stream of consumption on the Hicksian traverse. A discrepancy between the entrepreneur's expected value of the asset and its market value in the non-steady state of the traverse explains the accruals of capital gains to the asset owner. The article then looks at the effect of structural change on capital gains. Structural change is measured by the extent of mechanization of a new technique: the more mechanized the new technique the greater its effect on asset prices. The introduction of a new technique could either come from an improvement in the general level of technology or from an increase in credit availability, but technical progress causes fewer changes in the entrepreneur's valuation of assets than does the expansion of credit.