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Differential Capital Charges and Resource Allocation in Soviet Industry

Judith Thornton
Journal of Political Economy
Vol. 79, No. 3 (May - Jun., 1971), pp. 545-561
Stable URL: http://www.jstor.org/stable/1830771
Page Count: 17
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Differential Capital Charges and Resource Allocation in Soviet Industry
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Abstract

This study attempts to estimate the magnitude of the output loss that can be attributed to differential capital charges in Soviet industry. It does this by estimating the quantity of resources that could be freed if the observed output of each industry were produced not with the observed combination of capital and labor, but with an efficient combination--defined as the combination that equates the marginal rate of equal-product substitution of capital for labor in each industry to the equilibrium factor price ratio. Subject to a number of assumptions, the model developed here indicates that, in the period 1960-64, a reallocation of capital and labor that equalized factor returns among the main Soviet industrial sectors, holding the level and mix of output constant, would have freed resources with an annual value equal to 3-4 percent of value added in the industries covered.

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