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On the Desired Rate of Capacity Utilization

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  • Michalis Nikiforos

    (Department of Economics, New School for Social Research)

Abstract

This paper examines the endogeneity (or lack thereof) of the rate of capacity utilization in the long run within the context of the controversy surrounding the Kaleckian model of growth and distribution. We argue that the proposed long-run dynamic adjustment, proposed by Kaleckian scholars, lacks a coherent economic rationale. We provide economic justification for the adjustment of the desired rate of utilization towards the actual rate on behalf of a cost-minimizing firm, after examining the factors that determine the utilization of resources. The cost minimizing firm has an incentive to increase the utilization of its capital if the rate of the returns to scale decreases as its production increases. We show that there are evidence in the theory and the empirical research that justify this behavior of returns to scale. In that way the desired rate of utilization becomes endogenous.

Suggested Citation

  • Michalis Nikiforos, 2011. "On the Desired Rate of Capacity Utilization," Working Papers 1116, New School for Social Research, Department of Economics.
  • Handle: RePEc:new:wpaper:1116
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    File URL: http://www.economicpolicyresearch.org/econ/2011/NSSR_WP_162011.pdf
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    References listed on IDEAS

    as
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    Citations

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    Cited by:

    1. Christian Schoder, 2012. "Effective demand, exogenous normal utilization and endogenous capacity in the long run. Evidence from a CVAR analysis for the US," IMK Working Paper 103-2012, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    2. Michalis Nikiforos, 2013. "The (Normal) Rate of Capacity Utilization at the Firm Level," Metroeconomica, Wiley Blackwell, vol. 64(3), pages 513-538, July.
    3. Christian Schoder, 2012. "Instability, stationary utilization and effective demand: A synthesis of Harrodian and Kaleckian growth theory," IMK Working Paper 104-2012, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    4. Peter Skott, 2012. "Pluralism, the Lucas critique, and the integration of macro and micro," UMASS Amherst Economics Working Papers 2012-04, University of Massachusetts Amherst, Department of Economics.
    5. Christian Schoder, 2012. "Endogenous capital productivity in the Kaleckian growth model. Theory and Evidence," IMK Working Paper 102-2012, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.

    More about this item

    Keywords

    Kaleckian; Long Run; Economies of Scale; Utilization;

    JEL classification:

    • B20 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - General
    • B50 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - General
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution

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