On the Desired Rate of Capacity Utilization

Michalis Nikiforos

No 1116, Working Papers from New School for Social Research, Department of Economics

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.

Keywords: Kaleckian; Long Run; Economies of Scale; Utilization (search for similar items in EconPapers)
JEL-codes: B20 B50 D21 E11 E12 E22 E25 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2011-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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http://www.economicpolicyresearch.org/econ/2011/NSSR_WP_162011.pdf First version, 2011 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:new:wpaper:1116

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