Long-Lived Capital With Embedded Tangible and Intangible Capital
The embodiment of innovation, ideas, and technology in capital investment—both tangible and intangible—has been among the most notable features of the four industrial revolutions. The nature of technological embodiment has been a source of periodic controversy in the economics literature. Putty-clay capital was studied in the 1960s, and received renewed attention in the 1990s and 2000s (see Hercowitz 1998, Cullenberg and Dasgupta 2001 and Gilchrist and Williams 2002).
With putty-clay capital, the ex ante production technology allows substitution between capital and labor. Ex post, however, productivity is determined by the embodied vintage technology and the fixed choice ...
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