Displaced Capital

UCSD Dept. of Economics Working Paper No. 98-24

61 Pages Posted: 4 Feb 1999

See all articles by Valerie A. Ramey

Valerie A. Ramey

University of California at San Diego; National Bureau of Economic Research (NBER)

Matthew D. Shapiro

University of Michigan at Ann Arbor - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: October 1998

Abstract

This paper studies the efficiency with which physical capital can be reallocated across sectors. It presents a model of a firm selling specialized capital in a thin resale market. The model predicts that the selling price depends not only on the sectoral specificity of capital, but also on the thinness of the market and the discount factor of the firm. It then provides empirical evidence on the sectoral mobility of capital based on equipment-level data from aerospace industry auctions. These data track the flow of used capital across industries, as well as the discounts at which the capital sells. The results suggest substantial sectoral specificity of capital. Capital that flowed out of the sector sold for only one-third of its estimated replacement cost.

JEL Classification: E22, D24, D83

Suggested Citation

Ramey, Valerie A. and Shapiro, Matthew D., Displaced Capital (October 1998). UCSD Dept. of Economics Working Paper No. 98-24, Available at SSRN: https://ssrn.com/abstract=138980 or http://dx.doi.org/10.2139/ssrn.138980

Valerie A. Ramey (Contact Author)

University of California at San Diego ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States
858-534-2388 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Matthew D. Shapiro

University of Michigan at Ann Arbor - Department of Economics ( email )

and Survey Research Center
611 Tappan Street
Ann Arbor, MI 48109-1220
United States
313-764-5419 (Phone)
313-764-2769 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
313-764-5419 (Phone)
313-764-2769 (Fax)