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Journal of Applied Mathematics and Decision Sciences
Volume 2005, Issue 4, Pages 201-211
http://dx.doi.org/10.1155/JAMDS.2005.201

Profitability, investment, and efficiency wages

Department of Economics and Finance, University of Texas Pan American, 1201 West University Drive Edinburg, 78541, TX, USA

Received 13 October 2004

Copyright © 2005 Hindawi Publishing Corporation. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

We examine a model that blends the neoclassical theory of investment with an intertemporal efficiency wage model with turnover costs. Investment decisions in capital are associated with the allocation of labor and the determination of efficiency wages. The model relates Tobin's q to efficiency wages and, in particular, to the Solow condition. It provides a general framework to analyze firm's intertemporal choices of capital, labor and efficiency wages.