Energy price changes and the induced revaluation of durable capital in US manufacturing

Technical Report · Fri Jul 01 04:00:00 EDT 1983

OSTI ID:6407723

Berndt, E R; Wood, D O

The modern theory of cost and production is linked with the quality or hedonic literature. According to this quality-quantity demand framework, if quality is important it must be evident in cost-minimizing factor quantity demand equations. As a corollary, input quality can be inferred indirectly using data on, among other things, input quantity. In this sense the existence of energy price-related capital quality is shown to be a testable empirical issue formulated within the modern theory of cost and production. An empirically implementable quality-quantity factor demand model is developed and specified in which the stock and quality of capital is fixed in the short run, capital quality depends on energy prices and the energy efficiency embodied in the surviving vintages of capital, and firms minimize variable costs in producing a given level of output. Data construction procedures and sources are outlined and a measure of the energy efficiency embodied in the capital stock quantity at time t is developed that depends on the vintage structure of capital and the relative energy prices existing when earlier vintages of capital were originally purchased. After discussing other data and econometric issues, empirical results for US manufacturing, 1947-77 are presented. Alternative estimates of quality-adjusted capital stocks are included and these measures are compared with those based on traditional energy price-independent capital stock measurement procedures. Implications of these quality-adjusted capital stock measures for the magnitude of the alleged post-1973 productivity slowdown in US manufacturing are discussed.

• Research Organization: Massachusetts Inst. of Tech., Cambridge (USA). Alfred P. Sloan School of Management
• OSTI ID: 6407723
• Report Number(s): NP-5900007; ON: TI85900007
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING, POLICY, AND ECONOMY
290200* -- Energy Planning & Policy-- Economics & Sociology
CAPITAL
COST
DEMAND
ECONOMETRICS
ECONOMICS
ENERGY DEMAND
ENERGY EXPENSES
IMPLEMENTATION
MANUFACTURING
MATHEMATICAL MODELS