TY  - JOUR
AU  - Schankerman,Mark
AU  - Nadiri,M. Ishaq
TI  - Restriced Cost Functions and the Rate of Return to Quasi-Fixed Factors, with an Application to R&D and Capital in the Bell System
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 1259
PY  - 1987
Y2  - May 1987
UR  - http://www.nber.org/papers/w1259
L1  - http://www.nber.org/papers/w1259.pdf
N1  - Author contact info:
Mark Schankerman
Department of Economics, R.516
London School of Economics
Houghton Street
London WC2A 2AE
UK
Tel: 442079557518
E-Mail: M.Schankerman@lse.ac.uk

M. Ishaq Nadiri
Department of Economics
New York University
19 W. 4th Street, 6th Floor
New York, NY  10012
Tel: 212/998-8968
Fax: 212/995-4013
E-Mail: min1@nyu.edu
AB  - This paper provides a statistical test to assess the adequacy of static equilibrium models. The test is based on a restricted cost function framework together with the envelope conditions which characterize static equilibrium for the quasi-fixed factors. We also show how restricted cost function models can be exploited to investigate some important issues such as the calculation of the rates of return to quasi-fixed factors, the determination of over- or underinvestment in particular assets, and the distinction between short run excess capacity and long run economies of scale. We provide an empirical application of these techniques to data on the Bell System for the period 1947-1976, treating the stocks of physical capital and of research and development (R&D) as quasi-fixed inputs. The results suggest that there was substantial overinvestment in capital and underinvestment in R&D compared to the static equilibrium levels, and that the rates of return to capital and R&D were about 4.5 and 10-15 percent, respectively.
ER  -