Expectations, substitution, and scrapping in a putty clay model
Working paper
Åpne
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http://hdl.handle.net/11250/2574708Utgivelsesdato
1986-08-15Metadata
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- Discussion Papers [1002]
Sammendrag
The paper presents a putty-clay framework for analyzing the effect of changing
expectations about future prices on a firm's choice of technique, and
on its anticipated scrapping of capital equipment. Particular attention is
paid to the way in which the scrapping age depends on the degree of ex ante
input substitution. Empirical illustrations - based on data for Norwegian
manufacturing for the years 1964-1983, an ex ante technology represented by
a Generalized Leontief cost function in materials, energy, labour, and capital,
and an ARMA representation of the price expectation mechanism - are
presented. The results indicate that the price changes in this period may
have had a substantial impact on planned scrapping, and on the chosen production
techniques.