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Working Paper
Valuation, investment and the pure profit share
This paper explores some implications for valuation and investment of challenging the standard assumption that there are no aggregate pure profits in the US economy. First, it highlights the theoretical importance of monopoly rents for fluctuations in average Q. A series for such rents is then computed by assuming that production is Cobb-Douglas, as fluctuations in the output share of pure profits may be inferred from variations in the labor share. Consequently, the paper focuses on the correlation between a measure of rents and observable average Q. It also reassesses the empirical ...
Working Paper
Asset prices and rents in a GE model with imperfect competition
This paper analyses the general equilibrium effects on asset valuation and capital accumulation of an exogenous drop in the rate of return required by investors in a model of production with imperfectly competitive product markets. The model improves substantially on the standard perfectly competitive neo-classical framework, by dissociating the behavior of marginal and average q. It tracks more closely current observed data on the ratio of stock-market value to the economy's capital base, while uncoupling this valuation ratio from investment behavior. The model does so by assuming that asset ...