How To Spend It? Capital Accumulation in a Changing World

Gosselin, Pierre and Lotz, Aïleen and Wambst, Marc (2016): How To Spend It? Capital Accumulation in a Changing World.

Abstract

In a society characterized by a multitude of heterogeneous agents and a large number of possibly immaterial (i.e. cultural, educational, etc...) goods, each one having a distinct social (relative price) and personal value (individual preference), we study the impact of these relative values’ evolution on capital accumulation, depending on economic and social parameters, such as capital mobility, productivity, and personal and social values discrepancies. We consider an arbitrary number of agents, each endowed with a one-period production function and a two-period intertemporal utility. Agents live, produce and consume over one period, but optimize over two periods, so providing a stock of goods for the next generation. In period one, the inherited stock may be partly disposed of to produce alternate goods, depending on the agent individual preferences and on the present goods’ social value, thus creating a dynamics in capital accumulation. A phenomenon of threshold appears in the dynamics of the agent capital stock. Below this threshold, the initial stock will quickly fade away; above, capital accumulation is possible. The threshold strongly depends on both personal and social values volatilities. When social values vary strongly, the threshold increases, and stocks depreciate faster than they are replaced. Shocks on the goods’ social values may drive stocks above or below the threshold, in turn inducing a reversal in dynamics. For a precursor, i.e. an agent whose personal values will be next period social values, a strong mobility in capital will decrease the threshold: there is a gain to innovate. When social values are an average of several sectors' values, one sector will ultimately dominate. Its values will become social values, and its stock will appreciate at the expense of other sectors.

• Item Type: MPRA Paper
• Language: English
• Keywords: Capital theory, Capital accumulation, Investment allocation, Two-sector models, Disaggregated capital, Take-off, Threshold effect, Intergenerational models, Cambridge capital controversy.
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E22 - Investment ; Capital ; Intangible Capital ; Capacity; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O10 - General; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O30 - General; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General

References

[1] Araujo, R. Optimal Human Investment Allocation. Economics Letters, v. 85, p. 71-76, 2004.

[2] Araujo, R. & Teixeira, J. Structural Change and Decisions on Investment Allocation. Structural Change and Economic Dynamics, v. 13, p. 249-258, 2002.

[3] Bose, S. Optimal Growth and Investment Allocation. Review of Economic Studies, p. 456-480, 1968.

[4] Edwin Burmeister, "The Capital Theory Controversy', in Critical Essays on Piero Sraffa's Legacy in Economics (edited by Heinz D. Kurz), Cambridge: Cambridge University Press, 2000.

[5] Avi J. Cohen, G. C. Harcourt, "Whatever Happened to the Cambridge Capital Theory Controversies?" Journal of Economic Perspectives, 17(1), Winter 2003, 199-214.

[6] Collechia, A.; Schreyer, P. Ict Investment and Economic Growth in the 1990s: Is the United States a Unique Case? A Comparative Study of Nine OECD Countries. Review of Economic Dynamics, v. 5, p. 408-442, 2002.

[7] Cummins, J.; Violante, G. Investment specific technical change in the United States (1947-2000): Measurement and macroeconomic consequences. Review of Economic Dynamics, v.5, p. 243- 284, 2002.

[8] Pierangelo Garegnani, Capital in the Neoclassical Theory. Some Notes, 2008, see * Garegnani's Paper.

[9] Christian Gehrke and Christian Lager, "Sraffa an Political Economy", Encyclopedia of Political Economy, Routledge 2000.

[10] Greenwood, J. The role of investment specific technological change in the business cycle. European Economic Review, v. 44, p. 91-115, 2000.

[11] Greenwood, J.; Hercowitz, Z.; Krusell, P. Long-run Implications of Investment-Specific Technological Change. The American Economic Review, v. 87, p. 342-362, 1997.

[12] G.C. Harcourt and N.F. Laing, Capital and Growth, Harmondsworth, UK: Penguin, 1971.

[13] G. C. Harcourt, Some Cambridge Controversies in the Theory of Capital. Cambridge: Cambridge University Press 1972

[14] Iglesias, F. Neutral. Investment-Specific Technical Progress and the Productivity Slowdown. Louvain Economic Review, v. 68, p. 37-49, 2002.

[15] Kotlikoff, Laurence J. and Summers, Lawrence H. "The Role of Intergenerational Transfers in Aggregate Capital Accumulation." Journal of Political Economy, Vol. 89, No. 4, (August 1981), pp. 706-732.

[16] Heinz D. Kurz, "capital theory: paradoxes, The New Palgrave: A Dictionary of Economics, London and New York: Macmillan and Stockton, 1987, pp. 359-363.

[17] Michael Lebowitz, 2009, "Another Crisis of Economic Theory: The Neo-Ricardian Critique", In his Following Marx: Method, Critique and Crisis, Leiden & Boston: Brill, 2009.

[18] Leontief, Wassily (1953). "Domestic Production and Foreign Trade; The American Capital Position Re-Examined". Proceedings of the American Philosophical Society 97 (4): 332-349.

[19] Licandro, O.; Castillo, J.; Duran, J. The Measurement of Growth under Embodied Technical Change. Louvain Economic Review, v. 68, p. 7-20, 2002.

[20] Linder, S. B. An Essay on Trade and Transformation, Stockholm: Almqvist & Wicksell, 1961.

[21] Andreu Mas-Colell, "Capital Theory Paradoxes: Anything Goes", in "Joan Robinson and Modern Economic Theory"(ed. by G. R. Feiwel), New York University Press, 1989

[22] Franco Modigliani, The Role of Intergenerational Transfers and Life Cycle Saving in the Accumulation of Wealth, Journal of Economic Perspectives- Volume 2, Number 2-Spring 1988- Pages 15-40

[23] Bertil Ohlin, Interregional and International Trade, Cambridge, Harvard University Press, 1933

[24] Luigi L. Pasinetti and Roberto Scazzieri, "capital theory: paradoxes, The New Palgrave: A Dictionary of Economics, London and New York: Macmillan and Stockton, 1987, pp. 363-68.

[25] Fabio Petri, On the Recent Debate on Capital Theory and General Equilibrium, 2009, see * Economic Department of the University of Siena.

[26] Robinson J., The Production Function and the Theory of Capital, Review of Economic Studies, Vol. 21, No. 2)

[27] Robinson, Joan. 1956. Accumulation of Capital, Homewood, IL: Richard D. Irwin.

[28] Romer, Paul M.. 2015. "Mathiness in the Theory of Economic Growth." American Economic Review, 105(5)

[29] Paul A. Samuelson (1987). "Sraffan economics" The New Palgrave: A Dictionary of Economics, v. 3, pp. 452-60.

[30] Schumpeter, Joseph A. (1994) [1942]. Capitalism, Socialism and Democracy. London: Routledge.

[31] Solow, Robert M. Technical Change and the Aggregate Production Function, The Review of Economics and Statistics, Vol. 39, No. 3 (Aug., 1957), pp. 312-320.

[32] Joseph E. Stiglitz, "The Cambridge-Cambridge Controversy in the Theory of Capital; A View from New Haven: A Review Article" Journal of Political Economy, 82(4), Jul.-Aug. 1974: 893-903.

[33] Weitzman, M. Shiftable versus non-shiftable capital: a synthesis. Econometrica, p. 511-529, 1971.