A Model of and Some Evidence on the Interrelatedness of Decisions Underlying the Demand for Capital Services

17 Pages Posted: 20 Jan 2006

See all articles by Georgios (George) C. Bitros

Georgios (George) C. Bitros

Athens University of Economics and Business - Department of Economics

Abstract

The objective in this paper is to investigate systematically the existence and nature of interactions among the decisions for gross investments, capital scrappage, and maintenance expenditures. For this purpose, a three-equation model is proposed and implemented econometrically, using date from the locomotives and freight cars of the Class-I railways in the United States during the period 1944-1970. The results obtained suggest that, for the assets studied, the aforementioned decisions exhibit substantial interactions that are in accord with most a priori considerations. The structural estimates of the model, for example, show that, among other things: (a) gross investment is related positively to scrappage and negatively to maintenance expenditures, depending on the particular asset considered;(b) scrappage and maintenance expenditures of both locomotives and freight cars are associated inversely, and (v) maintenance expenditures are also significantly influenced by either current or lagged gross investment.

Suggested Citation

Bitros, Georgios (George) C., A Model of and Some Evidence on the Interrelatedness of Decisions Underlying the Demand for Capital Services. European Economic Review, Vol. 7, pp. 377-393, 1976, Available at SSRN: https://ssrn.com/abstract=875817

Georgios (George) C. Bitros (Contact Author)

Athens University of Economics and Business - Department of Economics ( email )

76 Patission Street
Athens, 10434
Greece
030 210 8203740 (Phone)
030 210 8070545 (Fax)

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