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Economic Capacity Utilization and Productivity Measurement for Multi-product firms with multiple quasi-fixed inputs

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  • Ernst R. Berndt
  • Melvyn A. Fuss

Abstract

In this paper we develop measures of economic capacity output and economic capacity utilization for firms producing multiple outputs and having one or .ore quasi-fixed inputs. Although we produce an impossibility theorem showing that based only on the assumption of cost minimization, the concept of capacity output is undefined whenever the number of outputs I exceeds the number of fixed inputs M, we are able to provide alternative constructive procedures for defining capacity output whenever I [is less than] M. We also propose a number of additional primal and dual measures of utilization of the variable and fixed inputs, including a multi-fixed input analog to Tobin's q. We relate these alternative utilization measures to one another, and show that unambiguous inequality relationships among them (relative to unity) can typically be specified a priori only under rather restrictive assumptions. We show that unless restrictive assumptions are made. the multi-fixed input analogs to Tobin's q have little informational content regarding incentives for net investment of any specific fixed input. Finally, we demonstrate the usefulness of the alternative utilization measures by showing how they can be incorporated to adjust traditional measures of multi factor productivity growth for variations in short-run utilization.

Suggested Citation

  • Ernst R. Berndt & Melvyn A. Fuss, 1989. "Economic Capacity Utilization and Productivity Measurement for Multi-product firms with multiple quasi-fixed inputs," NBER Working Papers 2932, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:2932
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    Cited by:

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    2. Jianmin Tang & Weimin Wang, 2023. "Capacity Utilization and Production Function Estimation: Implications for Productivity Analysis," International Productivity Monitor, Centre for the Study of Living Standards, vol. 45, pages 178-199, Fall.
    3. Charles R. Hulten, 1991. "The Measurement of Capital," NBER Chapters, in: Fifty Years of Economic Measurement: The Jubilee of the Conference on Research in Income and Wealth, pages 119-158, National Bureau of Economic Research, Inc.
    4. Tan, Ruipeng & Liu, Kui & Lin, Boqiang, 2018. "Transportation infrastructure development and China’s energy intensive industries - A road development perspective," Energy, Elsevier, vol. 149(C), pages 587-596.
    5. Itziar Lazkano & Linda Nøstbakken, 2016. "Quota Enforcement and Capital Investment in Natural Resource Industries," Marine Resource Economics, University of Chicago Press, vol. 31(3), pages 339-354.
    6. Dupont, Diane P. & Grafton, R. Quentin & Kirkley, James & Squires, Dale, 2002. "Capacity utilization measures and excess capacity in multi-product privatized fisheries," Resource and Energy Economics, Elsevier, vol. 24(3), pages 193-210, June.
    7. Pierre-Alain Pionnier & Belén Zinni & Kéa Baret, 2023. "Measuring Capital and Multifactor Productivity: The Role of Asset Depreciation and Initial Capital Stock Estimates," International Productivity Monitor, Centre for the Study of Living Standards, vol. 45, pages 155-177, Fall.
    8. Catherine J. Morrison Paul, 2003. "Cost Economies: A Driving Force for Consolidation and Concentration?," Southern Economic Journal, John Wiley & Sons, vol. 70(1), pages 110-127, July.
    9. John B. Walden & James E. Kirkley & Andrew W. Kitts, 2003. "A Limited Economic Assessment of the Northeast Groundfish Fishery Buyout Program," Land Economics, University of Wisconsin Press, vol. 79(3), pages 426-439.
    10. Panos Fousekis & Aspasia Papakonstantinou, 1997. "Economic Capacity Utilisation And Productivity Growth In Greek Agriculture," Journal of Agricultural Economics, Wiley Blackwell, vol. 48(1‐3), pages 38-51, January.
    11. Dale Squires & Yongil Jeon & R. Quentin Grafton & James Kirkley, 2010. "Controlling excess capacity in common-pool resource industries: the transition from input to output controls ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 54(3), pages 361-377, July.
    12. Bassim Shebeb & Nadhem Al-Saleh, 2010. "Economic Growth in Bahrain: The Contribution of Multifactor Productivity," Working Papers 558, Economic Research Forum, revised 10 Jan 2010.
    13. Mohieddine Rahmouni, 2021. "Determinants of capacity utilisation by firms in developing countries: evidence from Tunisia," International Journal of Technological Learning, Innovation and Development, Inderscience Enterprises Ltd, vol. 13(3), pages 212-245.

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