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Long-Run Expectations And Capacity


  • Robert H Mcguckin
  • Peter Zadrozny


In this paper, we argue at a general level, that recent economic models of capacity and of its utilization are deficient because they do not adequately take into account firms' long-run expectations about conditions which are pertinent to their investment decisions, i.e., their decisions about altering productive capacity. We argue that the problem with these models is that they rely on the two conventional definitions of capacity which ignore these long-run expectations. Accordingly, we propose a third definition of capacity which incorporates these expectations and, thereby, corrects the problem. Furthermore, we argue that a correct, empirical analysis with the proposed definition -- indeed, any credible analysis of capacity or its utilization -- must take into account the demand for the output produced by the firms being studied. Finally, we apply the definition to clarify the meaning of surveys of capacity and, thus, show how it can be used to improve future surveys of capacity.

Suggested Citation

  • Robert H Mcguckin & Peter Zadrozny, 1988. "Long-Run Expectations And Capacity," Working Papers 88-1, Center for Economic Studies, U.S. Census Bureau.
  • Handle: RePEc:cen:wpaper:88-1

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    References listed on IDEAS

    1. Frank R. Lichtenberg & Donald Siegel, 1987. "Productivity and Changes in Ownership of Manufactoring Plants," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(3, Specia), pages 643-684.
    2. Edward Kokkelenberg & Sang Nguyen, 1989. "Modeling technical progress and total factor productivity: A plant level example," Journal of Productivity Analysis, Springer, vol. 1(1), pages 21-42, March.
    3. Solow, John L, 1987. "The Capital-Energy Complementarity Debate Revisited," American Economic Review, American Economic Association, vol. 77(4), pages 605-614, September.
    4. Robert H Mcguckin & George A Pascoe, 1988. "The Longitudinal Research Database (LRD): Status And Research Possibilities," Working Papers 88-2, Center for Economic Studies, U.S. Census Bureau.
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    Cited by:

    1. Maura P Doyle, 2000. "The 1989 Change in the Definition of Capacity: A Plant-Level Perspective," Working Papers 00-09, Center for Economic Studies, U.S. Census Bureau.
    2. Carol Corrado & Joe Mattey, 1997. "Capacity Utilization," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 151-167, Winter.
    3. Joe Mattey, 1993. "Evidence on IO Technology Assumptions From the Longitudinal Research Database," Working Papers 93-8, Center for Economic Studies, U.S. Census Bureau.
    4. Sang V Nguyen & Robert H Mcguckin & Arnold P Reznek, 1995. "The Impact Of Ownership Change On Employment, Wages, And Labor Productivity In U.S. Manufacturing 1977-87," Working Papers 95-8, Center for Economic Studies, U.S. Census Bureau.

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    CES; economic; research; micro; data; microdata; chief; economist;


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