TY - JOUR
AU - Abel,Andrew B.
TI - On the Invariance of the Rate of Return to Convex Adjustment Costs
JF - National Bureau of Economic Research Working Paper Series
VL - No. 8635
PY - 2001
Y2 - December 2001
DO - 10.3386/w8635
UR - http://www.nber.org/papers/w8635
L1 - http://www.nber.org/papers/w8635.pdf
N1 - Author contact info:
Andrew B. Abel
The Wharton School
University of Pennsylvania
2315 Steinberg Hall - Dietrich Hall
Philadelphia, PA 19104-6367
Tel: 215/898-4801
Fax: 215/573-7244
E-Mail: abel@wharton.upenn.edu
AB - The Modified Golden Rule, which relates the rate of return on capital and the growth rate of the capital stock along long-run growth paths that maximize the utility of a representative infinitely-lived consumer, is invariant to the introduction of convex capital adjustment costs. Therefore, along balanced growth paths in neoclassical optimal growth models with an exogenous long-run growth rate of capital, the rate of return is invariant to the introduction of convex adjustment costs, though the capital-labor ratio is reduced along such paths. In AK models, convex adjustment costs reduce the growth rate and rate of return on capital.
ER -