DIFFERENTIAL DEPRECIATION AND THE 2 × 2 MODEL OF DISTRIBUTION, PRICING AND PRODUCTION

Ian Steedman

Metroeconomica, 2006, vol. 57, issue 1, 112-119

Abstract: In a two‐sector model it is entirely arbitrary to take the depreciation rate to be the same in both sectors; capital is being used differently in the two sectors! With differential depreciation rates factor‐intensity‐reversal can arise even when both sectors have a Cobb–Douglas technology. Efficient allocations do not involve mutual tangency points between consumption–good and capital–good isoquants.

Date: 2006
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