practitioners needing estimates of a firm's equity cost of capital have long relied on the Capital Asset Pricing Model (CAPM). Recent evidence casts renewed doubt on the validity of the CAPM and beta. However, there is not much evidence to gauge the importance of the rejections of the CAPM in a practical decision-making context. This paper presents evidence on the sources of error in estimating...

In this paper, I develop a new measure of human capital stock that has two advantages over previous measures. First, it allows for the fact that the cost of education varies across time, countries, and levels. Second, the unit of measurement is dollars, which allows comparison of human capital stocks with other macroeconomic variables, including national income (GDP) and physical capital stocks...

Part 1 of this paper (http://www.paecon.net/PAEReview/issue59/Moseley59.pdf) argued that the marginal productivity theory of distribution has fundamental and insoluble logical problems: (1) the aggregate production function is not a legitimate concept, because capital consists of diverse buildings and equipment that cannot be reasonably aggregated into a total quantity for the economy as a whol...

What is the "cost of capital" to a firm in a world in which funds are used to acquire assets whose yields are uncertain; and in which capital can be obtained by many different media, ranging from pure debt instruments , representing money-fixed claims, to pure equity issues, giving holders only the right to a pro-rata share in the uncertain venture.? This question has vexed at least three class...

The Data Nerlove assembled a cross-section data set for 1955. The set contains 145 …rms in 44 states. The variables are: total costs, factor prices (the wage rate, the price of fuel, the rental rate of capital) and output. Rental rate of capital: Although …rms own capital (e.g. power plants), standard investment theory (Jorgenson 1963) tells us that (as long as there are no costs in changing th...

For most of the postwar period, Europe’s capital markets remained largely closed to international capital flows. This paper explores the costs of this policy. Using the familiar event-study methodology, we examine the extent to which restrictions of current and capital account convertibility affected stock returns. We find that the delayed introduction of full currency convertibility increased ...

We develop a theory of how agency conflicts between the shareholders and debt holders of a financial institution, accounting measurement rules, and prudential capital regulation interact to affect the institution’s capital structure and project choices. We show that, relative to a benchmark historical cost regime in which assets and liabilities on the institution’s balance sheet are measured at...

Traditional economic theory provides a conundrum for pricing large, lumpy infrastructure investments: very different shortand long-run pricing prescriptions. Unless the facility is congested, efficient short run prices should only cover operating costs (short-run marginal cost, SMC); any higher price designed to also recover capital costs would risk inefficient under-utilization. However, if th...