Dynamic Efficiency and Reswitching
The paper argues that, from a dynamic efficiency perspective, intersections of factor price frontiers are irrelevant to the choice of techniques. Because every change in technique involves a temporary loss or gain in both profit and per capita consumption within the transition period, its profitability should be calculated by applying the present value criterion to the entire change process. With only one transition period, there is generally a unique interest rate at which the change in technique breaks even. This critical interest rate is generally the same for a profit maximizing firm as for a central planner who seeks to maximize consumption per unit of work. This critical interest rate does not generally coincide with either of the interest rates at which the factor price frontiers intersect. Therefore, common proofs of the socalled reswitching phenomenon do not stand up well from a dynamic efficiency perspective.
|Date of creation:|
|Contact details of provider:|| Postal: Am Stadtgraben 9, 48143 Münster|
Phone: (02 51) 83-2 29 71
Fax: (02 51) 83-2 29 70
Web page: http://www.wiwi.uni-muenster.de/insiwo
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Zonghie Han & Bertram Schefold, 2006. "An empirical investigation of paradoxes: reswitching and reverse capital deepening in capital theory," Cambridge Journal of Economics, Oxford University Press, vol. 30(5), pages 737-765, September.
- Arrow, Kenneth J & Levhari, David, 1969. "Uniqueness of the Internal Rate of Return with Variable Life of Investment," Economic Journal, Royal Economic Society, vol. 79(315), pages 560-566, September.
- Bliss, C. J., 1975. "Capital Theory and the Distribution of Income," Elsevier Monographs, Elsevier, edition 1, number 9780720436044 edited by Bliss, C. J..
- Harcourt,G. C., 1972.
"Some Cambridge Controversies in the Theory of Capital,"
Cambridge University Press, number 9780521096720, December.
- Harcourt, G C, 1969. "Some Cambridge Controversies in the Theory of Capital," Journal of Economic Literature, American Economic Association, vol. 7(2), pages 369-405, June.
- A. Cohen & G. Harcourt., 2009. "Whatever Happened to the Cambridge Capital Theory Controversies?," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 8.
- Nuti, Domenico M, 1973. "On the Truncation of Production Flows," Kyklos, Wiley Blackwell, vol. 26(3), pages 485-496.
- Hagemann, Harald & Kurz, Heinz D, 1976. "The Return to the Same Truncation Period and Reswitching of Techniques in Neo-Austrian and More General Models," Kyklos, Wiley Blackwell, vol. 29(4), pages 678-708.
- Flemming, J S & Wright, J F, 1971. "Uniqueness of the Internal Rate of Return: A Generalisation," Economic Journal, Royal Economic Society, vol. 81(322), pages 256-263, June. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:muc:wpaper:200122. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Norbert Hiller)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.