Advances in Decision Sciences
Volume 2005 (2005), Issue 4, Pages 201-211
doi:10.1155/JAMDS.2005.201
Profitability, investment, and efficiency wages
João Ricardo Faria
Department of Economics and Finance, University of Texas Pan American, 1201 West University Drive Edinburg, 78541, TX, USA
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.