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Estimating the Effectiveness of Capital Expenditures

Leonid Kantorovich, V. Bogachev and V. Makarov

Problems of Economic Transition, 1976, vol. 19, issue 4-6, 108-134

Abstract: In the course of technological planning of individual construction projects, when determing which design and planning variants to use, it is always necessary to compare the one-time expenditures (capital expenditures) and current costs (operating costs) to find the solution which gives the most profitable combination of the various kinds of social expenditures. The typical character of economic problems, in which reduction of operating costs by an increase in capital expenditures is attempted, has quite understandably led to an attempt by planners and designers to find principles which define a rational combination of these expenditures. As early as the 1920s, the problem of "effectiveness of capital investment" was stated with full clarity [1]. In the 1930s, engineers and designers, working primarily on energy and railroad transportation (see, for example, [2, 3]), formulated the idea of the norm of effectiveness — a planning standard expressing the social value of the resources in a capital investment and at the same time defining the desirable levels of their expenditure in each particulare case.

Date: 1976
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DOI: 10.2753/PET1061-199119040506108

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