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Capital waste in the rate-of-return regulated firm

✍ Scribed by Roger Sherman

Publisher: Springer US
Year: 1992
Tongue: English
Weight: 486 KB
Volume: 4
Category: Article
ISSN: 0922-680X
DOI: 10.1007/bf00157165

No coin nor oath required. For personal study only.

✦ Synopsis

Here it is shown how capital waste can be motivated under rate-of-return regulation, even when the marginal product of capital is positive. This result means that the sign of the marginal product of capital is not adequate as a basis for defining waste. The wasteful use of capital is motivated to avoid an inelastic region of demand, and involves pricing as well as technical input decisions of the firm.

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