Staff Report 201

Industry Evolution and Transition: Measuring Investment in Organization Capital

Patrick J. Kehoe | Stanford University, University College London, Federal Reserve Bank of Minneapolis
Andrew Atkeson | Consultant

Published November 1, 1995

Abstract
We use a calibrated model of the dynamics of organization capital and industry evolution to measure the size of investment in organization capital in the steady state and the dynamics of organization capital during the transition following a major reform. We find that, in the steady state, aggregate net investment in organization capital is roughly one-fifth of measured output. During the initial phase of transition, the failure rate of plants rises 200-400 percent, measured output and aggregate productivity stagnate, physical investment falls, and net investment in organization capital rises between 300 and 500 percent above its steady-state level.


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