Durable Capital Research Articles

The long-run impact of zoning: Institutional hysteresis and durable capital in Seattle, 1920–2015

This paper examines the coevolution of land use and zoning in Seattle from 1920 to 2015. Multiple waves of zoning and land use conversion data at the parcel level allow for a decomposition of the long-run effects of zoning and an exploration of the mechanisms through which zoning influenced future land use. In particular, I disentangle short-run impacts on land use from long-term institutional hysteresis, showing that the latter played a sizable role in shaping future land use. Additionally, data on variances allows me to examine early compliance levels, an underexplored topic with implications for long-run impacts. While much has been written about persistence in urban form due to purely economic forces, relatively little research has explored how institutional forces can entrench or alter this trajectory, and I find that such institutional constraints can have substantial influence.

A NOTE ON CAPITAL UTILIZATION AND INTERNATIONAL TRADE

This article integrates the analysis of durable capital utilization in the theory of international trade. Variations in capital utilization are analytically accounted for in the form of shift work. Accordingly, producers normally choose the combination of the system of operation of durable capital and labor input that minimizes costs. The choice of the system of operation of durable capital is shown to affect the terms of trade and thereby the structure of production in such a way as to make it desirable, following changes in income distribution, to adopt a new combination of capital utilization and labor input. On certain simplifying assumptions associated with the properties of Sraffa models, linear technologies, long period positions, and steady growth, these possibilities affect, in an unpredetermined manner, the inducement to trade and the direction and extent of the resulting specialization. The results are independent of any differences in the technical conditions of production of the trading countries or the existence of heterogeneous capital goods.

Technological Diffusion and Standardization Patterns: An Industrial Taxonomy

:This study expands on the results of a previous article I (Javier Carrillo-Hermosilla) co-wrote with Gregory Unruh (2006) and published in this journal. The present paper aims to identify and evaluate the relationships existing between the main characteristics of industries and the attributes of the technology standardization processes within them. To achieve this goal, six different sensitivity analyses were carried out on the effects of incremental modifications in the parameters of our agent based model (ABM). In addition to increasing returns, long term stability, or persistent standards, appears to require other variables, such as a low innovation rate, high user survival rates, durable capital, high switching costs, and/or high barriers entry. The results of the simulation allowed us to corroborate a number of intuitions from economics, while drawing attention to less obvious relationships, suggesting possible lines of empirical research to confirm and expand on the insights presented herein.

Real Options and Urban Land Values: A Review of the Literature

The central and unifying theme of this review is the value of urban land and its effect on investments in durable capital. More specifically, because structures are expensive to build, have an extensive construction time, and are long lasting, investments in durable capital entail a significant degree of uncertainty and irreversibility. I examine the estimation of the redevelopment option and explore the relationship between real options and land values. I also examine the determinants of the decision to redevelop physical capital either in whole (teardowns) or in part (renovations). Overall, this critical analysis contributes to a better understanding of urban land values by unifying the real option and redevelopment decision literatures within a broader context of real estate valuation. Both academics and practitioners should find the analysis relevant to their own real estate studies or investment decisions.

2. A New Framework for Macroeconomics

AbstractMost forms of macroeconomics today, whether Keynesian or monetarist, presuppose that problems of economic instability can be treated as errors in financial management. Neither fiscal nor monetary policy recognizes the existence of systemic faults in the real economy that result in overinvestment in durable capital that turns over slowly, in contrast to forms of capital that interact more frequently with land and labor. Only by removing serious distortions in microeconomic relations can macroeconomic problems be resolved. The current global economic crisis exemplifies the limitations of policies that ignore distortions in the rate of turnover of investment capital.

Land use regulation with durable capital

This article compares the level and distribution of the welfare changes from restricting land available for residential development in a city. We compare the economic costs when residential capital is durable with the costs when capital is perfectly malleable and those when population is also freely mobile. Our simulation, based on the stylized specification of an urban location model, suggests that in a more realistic setting with durable capital, the costs of regulation are substantially higher than they are when capital is assumed to be malleable or when households are assumed to be fully mobile. Importantly, the extent of wealth redistribution attributable to these regulations is much larger when these more realistic factors are recognized. When capital is durable, the results also imply that far more new development takes place on previously undeveloped land at the urban boundary, sometimes resulting in an increase in total land under development.

OPTIMAL TRANSITION DYNAMICS IN THE LEONTIEF TWO-SECTOR GROWTH MODEL WITH DURABLE CAPITAL: THE CASE OF CAPITAL INTENSIVE CONSUMPTION GOODS

We present results on undiscounted optimal policies in the Leontief two-sector growth model with durable capital. Unlike the results with a labour intensive consumption goods sector, we show that a monotonic optimal programme is only one special case out of many richer possibilities of transition dynamics. Depending on the initial capital stock, and a key parameter ζ that could be interpreted as a marginal rate of transformation of capital between today and tomorrow, an optimal programme may converge to a period-two cycle; and even when it converges to the golden rule stock, it can do so (damped) cyclically or with a “jump”.

A golden rule of depreciation

We treat the rate of depreciation as a choice variable and show that increased population growth and technological progress make optimal depreciation increase by raising the cost – in terms of consumption foregone – of providing the population with durable capital.

Firm Dynamics With Durable Capital and Financing Constraints

We consider the financing problem of a firm subject to moral hazard problems considered by Clementi and Hopenhayn (2006). We enrich the original model introducing durable capital, which allows us to make predictions based on the size of the firm, and we also allow for a stochastic liquidation value. We derive predictions for the optimal financing and liquidation policies and for firm dynamics.

SHAPE OF A WAGE‐PROFIT CURVE, SOME METHODOLOGY AND EMPIRICAL EVIDENCE

ABSTRACTLinear wage‐profit curve supports quite diverse theoretical propositions: Ricardo's treatment of distribution apart from theory of value, Marx's equivalence of unpaid labour and appropriated profits and neoclassical parables in capital theory. It has been known that the curve should deviate from a straight line, but an expression derived in this paper indicates that the deviations might be insignificant in any actual economy. Empirical evidence obtained, employing the Leontief‐Sraffa model with durable capital, strongly supported the previous conjecture. The evidence refers to a single economy, while its general relevance is approved by comparisons with other economies.

Security prices in a production economy with durable capital

Security prices and physical stocks of capital are determined jointly in a rational expectations economy as functions of a set of exogenous stochastic factors. Investors employ firm marginal productivity of capital to allocate savings across firms. Firm capital stocks adjust to exogenous shocks across many periods. Security price functions in period t are derived in the cases of constrained and unconstrained firm capital in t. The risk premia in security returns include two sets of terms. One set, corresponding to traditional asset pricing models, relates cash flows directly to the stochastic factors. The second set captures interfirm effects which arise because firm capital in each period t is durable.

Bliss Levels That Aren't

In an often cited paper, Hall (1978) observed that, under rational expectations and the life cycle-permanent income hypothesis, the first-order condition for utility maximization implies that the marginal utility of consumption follows a random walk. If single-period utility is quadratic, that is, if U(Ct) = -.5(B Ct)2, where Ct is time t consumption and U is utility, then consumption itself follows the random walk C, = a + bC,1 + et. If true utility is not quadratic, it may still be approximated by a quadratic. In this model b is the ratio of one plus the rate of time preference for utility to one plus the interest rate, and a = (1 b)B. The parameter B is interpreted as the bliss level of consumption because utility takes on its maximum value when C = B. This utility function is undefined for C > B because marginal utility is negative at these consumption levels. Given estimates of a and b, the corresponding bliss level is simply obtained using B = a/( 1 b). Yet authors who employ Hall's methodology and quadratic utility have not calculated B. Their oversight is corrected here. Using real per capita U.S. consumption of services and nondurables, Hall estimates a = 14 and b = 1.011 (0.003) (standard errors are in parentheses). These numbers imply a bliss level of B = $1,270, while C is in the range of $2,000-$4,000 (Hall actually gave the estimate of a as 0.0 14, but his data were in thousands). For consumption of durable goods, Mankiw (1982) uses Hall's methodology to derive the model Ct = ad + bCt1 + et + (d 1)et1, where Ct is real per capita U.S. consumption of durables and d is the rate of depreciation of durable capital. Setting d = 1, Mankiw estimates a = 2.65 (5.04) and b = 1.002 (0.011), which implies a bliss level of B = -$1,325. When d is estimated along with the other parameters, Mankiw finds ad = -4.37 (3.49), b = 1.015 (0.011), and

On Testing the Efficacy of Selective Credit Controls: Comment

In recent notes in this journal, Hamburger and Zwick [2] and Maris [3] presented empirical tests that were designed to determine the efficacy of selective credit controls on on consumer durables. The purpose of this comment is to argue that neither one of these tests is well suited to address the issue in question. Hamburger and Zwick estimate a version of the model of consumer durable expenditure developed by Mishkin [4] and argue that theirvresults suggest that i'selective credit policies are unlikely to have a significant effect on the composition of real expenditures [2, p. 107]. A close look at Mishkin's theoretical model indicates that the Hamburger and Zwick adaptation is inappropriate for testing the efficacy of selective credit policies. The empirical results obtained by Hamburger and Zwick are the only ones that are consistent with the theoretical model and should not be interpreted as evidence on selective credit policies. Mishkin specifies consumer durables expenditure as a function of transitory income, permanent income, the lagged stock of durable goods, total household debt, gross financial asset holdings of households,l and the user rental cost of consumer durable capital. The rationale for including debt and financial asset holdings as separate arguments in the expenditure function is that consumer durables are illiquid and the expected cost of holding such an illiquid asset is positively related to the probability of having to make a distress sale. Since a distress sale will take place whenever consumption plus debt service exceeds income plus financial assets, the probability of such a sale and the expected opportunity cost of holding consumer durables will be positively related to debt service and negatively related to financial asset holdings. A ceteris paribus rise in debt holdings will raise debt service and thereby the opportunity cost of holding consumer durables. This will tend to decrease expenditure on consumer durables. What should be stressed here is that the single linkage between household debt and expenditure is debt service.2 The Mishkin equation is reestimated by Hamburger and Zwick with two rather than one household debt explanatory variables. Total debt is decomposed into

Durable Capital Goods and the Notion of Capital Intensity: Wicksell on Akerman’s Problem Reconsidered

Durable Capital Goods and the Notion of Capital Intensity: Wicksell on Akerman’s Problem Reconsidered

Non-Substitution Theorems with Durable Capital Goods

Journal Article Non-Substitution Theorems with Durable Capital Goods Get access J. E. Stiglitz J. E. Stiglitz Cowles Foundation Yale University Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 37, Issue 4, October 1970, Pages 543–553, https://doi.org/10.2307/2296484 Published: 01 October 1970 Article history Received: 01 August 1968 Revision received: 01 November 1969 Published: 01 October 1970