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Investment Behavior and the Production Function

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  • Dale W. Jorgenson

Abstract

In the economic theory of investment behavior the form of the optimal production and investment policy depends critically on the form of technology. The purpose of this paper is to select an appropriate description of technology on the basis of empirical evidence for United States manufacturing industries. The evidence is consistent with a production function characterized by elasticity of substitution equal to unity and constant returns to scale. For this description of technology the optimal policy determines an optimal rate of growth of capital and associated capital/output and labor/output ratios for any set of prices of output, labor input, and capital input. The desired level of capital is a perpetually moving target to which actual capital never converges. The corresponding model of investment policy has been employed extensively in econometric studies of investment behavior. Characterization of the form of optimal investment policy makes it possible to resolve the considerable controversy over the interpretation of econometric models of investment.

Suggested Citation

  • Dale W. Jorgenson, 1972. "Investment Behavior and the Production Function," Bell Journal of Economics, The RAND Corporation, vol. 3(1), pages 220-251, Spring.
    • Handle: RePEc:rje:bellje:v:3:y:1972:i:spring:p:220-251
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    Cited by:

    1. Voxi Heinrich S Amavilah & Richard T. Newcomb, 2004. "Economic Growth and the Financial Economics of Capital Accumulation under Shifting Technological Change," GE, Growth, Math methods 0404001, University Library of Munich, Germany.
    2. Martin Williams, 1984. "The structure of production in the United States textile industry: The post-war period," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 120(1), pages 155-164, March.
    3. Fischer Black, 1982. "General Equilibrium and Business Cycles," NBER Working Papers 0950, National Bureau of Economic Research, Inc.
    4. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-224, January.
    5. Hyunbae Chun & Sung-Bae Mun, 2005. "The Structure of Adjustment Costs in Information Technology Investment," Economics Bulletin, AccessEcon, vol. 5(4), pages 1-9.
    6. Corbo, Vittorio & Dufour, Jean-Marie, 1978. "Fonctions de production dans l’économie du Québec," L'Actualité Economique, Société Canadienne de Science Economique, vol. 54(2), pages 176-206, avril-jui.
    7. Jakob Vesterlund Olsen & Arne Henningsen, 2011. "Investment Utilisation, Adjustment Costs, and Technical Efficiency in Danish Pig Farms," IFRO Working Paper 2011/13, University of Copenhagen, Department of Food and Resource Economics.
    8. Joseph Dragonette, 1983. "Returns to Scale: Some Time Series Evidence," Eastern Economic Journal, Eastern Economic Association, vol. 9(1), pages 23-27, Jan-Mar.
    9. Mirucki, Jean, 1980. "Vérification des conditions d'efficacité dans la production chez Bell Canada [Checking the conditions of efficient production in Bell Canada]," MPRA Paper 30147, University Library of Munich, Germany, revised Jun 1980.
    10. Kuper, Gerard H., 1996. "The effects of energy taxes on productivity and employment: The case of the Netherlands," Resource and Energy Economics, Elsevier, vol. 18(2), pages 137-159, June.
    11. Hyun-Euy Kim, 2007. "The Interest Rate Channel of Monetary Transmission under Low Inflation in Korea (in Korean)," Economic Analysis (Quarterly), Economic Research Institute, Bank of Korea, vol. 13(1), pages 1-56, March.
    12. Mirucki, Jean, 1980. "Comportement de l'entreprise réglementée: étude de l'hypothèse Averch-Johnson [Behavior of the Regulated Firm: A Study of the Averch-Johnson Hypothesis]," MPRA Paper 27669, University Library of Munich, Germany, revised 1982.
    13. Lamia Ben Hamida, 2006. "The Study of Investment Movement Using Tobin's Q Model: Swiss Case 1948-1995," EcoMod2006 272100009, EcoMod.
    14. Kent Fellows, "undated". "The Yield Curve as a Determinant of Investment in Durable Capital," Working Papers 2014-38, Department of Economics, University of Calgary, revised 06 Nov 2014.
    15. Oxana Babecka Kucharcukova & Renata Pasalicova, 2017. "Firm Investment, Financial Constraints and Monetary Transmission: An Investigation with Czech Firm-Level Data," Working Papers 2017/16, Czech National Bank.
    16. Benjamin Klotz & Rey Madoo & Reed Hansen, 1980. "A Study of High and Low "Labor Productivity" Establishments in US Manufacturing," NBER Chapters, in: New Developments in Productivity Measurement and Analysis, pages 239-292, National Bureau of Economic Research, Inc.
    17. repec:ebl:ecbull:v:5:y:2005:i:4:p:1-9 is not listed on IDEAS
    18. Amine Ben Amar, 2022. "On the role of Islamic banks in the monetary policy transmission in Saudi Arabia," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 12(1), pages 55-94, March.
    19. Daniele Girardi, 2017. "Old and new formulations of the neoclassical theory of aggregate investment : a critical review," UMASS Amherst Economics Working Papers 2017-03, University of Massachusetts Amherst, Department of Economics.
    20. Kent Fellows, "undated". "Capital Input Decisions under Rate of Return Regulation," Working Papers 2014-37, Department of Economics, University of Calgary, revised 06 Nov 2014.
    21. G. Fellows, 2015. "The capital structure of a firm under rate of return regulation: durability and the yield curve," Journal of Regulatory Economics, Springer, vol. 47(3), pages 273-299, June.

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