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


  • Ernst R. Berndt
  • Melvyn A. Fuss


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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    References listed on IDEAS

    1. Morrison, Catherine J., 1986. "Productivity measurement with non-static expectations and varying capacity utilization : An integrated approach," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 51-74.
    2. Schankerman, Mark & Nadiri, M. Ishaq, 1986. "A test of static equilibrium models and rates of return to quasi-fixed factors, with an application to the Bell system," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 97-118.
    3. Melvyn A. Fuss & Leonard Waverman, 1986. "The Extent and Sources of Cost and Efficiency Differences Between U.S. and Japanese Automobile Producers," NBER Working Papers 1849, National Bureau of Economic Research, Inc.
    4. D. W. Jorgenson & Z. Griliches, 1967. "The Explanation of Productivity Change," Review of Economic Studies, Oxford University Press, vol. 34(3), pages 249-283.
    5. Hulten, Charles R., 1986. "Productivity change, capacity utilization, and the sources of efficiency growth," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 31-50.
    6. Slade, Margaret E., 1986. "Total-factor-productivity measurement when equilibrium is temporary : A Monte Carlo assessment," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 75-95.
    7. Morrison, C. J. & Berndt, E. R., 1981. "Short-run labor productivity in a dynamic model," Journal of Econometrics, Elsevier, vol. 16(3), pages 339-365, August.
    8. Berndt, Ernst R & Morrison, Catherine J, 1981. "Capacity Utilization Measures: Underlying Economic Theory and an Alternative Approach," American Economic Review, American Economic Association, vol. 71(2), pages 48-52, May.
    9. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-224, January.
    10. Berndt, Ernst R. & Fuss, Melvyn A., 1986. "Productivity measurement with adjustments for variations in capacity utilization and other forms of temporary equilibrium," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 7-29.
    11. Morrison, Catherine J, 1988. "Quasi-Fixed Inputs in U.S. and Japanese Manufacturing: A Generalized Leontief Restricted Cost Function Approach," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 275-287, May.
    12. J. M. Cassels, 1937. "Excess Capacity and Monopolistic Competition," The Quarterly Journal of Economics, Oxford University Press, vol. 51(3), pages 426-443.
    13. Lawrence R. Klein, 1958. "The Measurement of Capacity," Cowles Foundation Discussion Papers 49, Cowles Foundation for Research in Economics, Yale University.
    14. Epstein, Larry G & Denny, Michael G S, 1983. "The Multivariate Flexible Accelerator Model: Its Empirical Restrictions and an Application to U.S. Manufacturing," Econometrica, Econometric Society, vol. 51(3), pages 647-674, May.
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    Cited by:

    1. 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.
    2. 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.
    3. 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.
    4. Catherine J. Morrison Paul, 2003. "Cost Economies: A Driving Force for Consolidation and Concentration?," Southern Economic Journal, Southern Economic Association, vol. 70(1), pages 110-127, July.
    5. 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.
    6. 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.
    7. 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.
    8. 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.

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