The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Capital Theory

  • Robert A. Becker
Reference work entry


Capital theory examines the special role played by time in resource allocation studies. The determination of the interest rate and functional distribution of income as well as how rational agents invest are analysed within single- and multi-sector general equilibrium frameworks. Here, agents exercise perfect foresight over alternative consumption and capital accumulation programs. Efficient programs are characterized. Representative and multi-agent infinitely lived households are studied. Equivalence principles link the equilibrium programs and optimal paths. Heterogeneous agent models with borrowing constraints are reviewed. A behavioural model of intertemporal choice is also compared to its constant discounting counterpart.


Aggregate capital Aggregation Allais paradox Altruism Arbitrage Arbitrage pricing theory Balanced growth Behavioural economics Cambridge controversies Capital accumulation Capital deepening Capital theory Capital value Cobb–Douglas functions Commitment Comparative dynamics Continuous and discrete time models Deterministic models Discounting Dynamic non-substitution theorems Dynamic programming Economic growth Efficient allocation Elasticity of substitution Epstein–Hynes utility functions Equivalence principle Euler equations Exhaustible resources Existence of general equilibrium Expected utility Functional distribution of income Futures markets General equilibrium Hahn problem Hotelling, H. Hyperbolic discounting Impatience Incomplete markets Infinite horizons Interest rates Interest rate determination Intertemporal choices Intertemporal utility functions Investment criteria Fisher, I. Kuhn–Tucker conditions Long run and short run Markov perfect equilibrium Multi-capital goods models Named goods Neoclassical capital theory No-arbitrage conditions Non-classical production functions Optimal growth Orthodox vision of capital theory Perfect foresight Portfolio equilibrium Present value investment criteria Probability Quasi-geometric discounting Rae, J. Ramsey, F. P. Ramsey model Rational expectations Rationality Recursive utility functions Reduced form model Renewable resources Representative agent Risk Saving and investment Shadow pricing Spot markets Sraffa, P. Stationary state Stylized facts Technical change Time Time consistency Time preference Transversality condition Turnpike theorems Uncertainty von Neumann, John 

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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Robert A. Becker
    • 1
  1. 1.