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Investment Cost Minimization for Communications Satellite Capacity: Refinement and Application of the Chenery-Manne-Srinivasan Model

Marcellus S. Snow
The Bell Journal of Economics
Vol. 6, No. 2 (Autumn, 1975), pp. 621-643
Published by: RAND Corporation
DOI: 10.2307/3003246
Stable URL: http://www.jstor.org/stable/3003246
Page Count: 23
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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.
Investment Cost Minimization for Communications Satellite Capacity: Refinement and Application of the Chenery-Manne-Srinivasan Model
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Abstract

Chenery, Manne, and Srinivasan contributed to a model of investment in capacity expansion assuming a demand growth rate, a discount rate, and economies of scale. In their model, minimizing the sum of discounted future capacity investment costs always requires capacity replenishments to be equally spaced in time if summation is over an infinite time horizon. But the model assumes a static technology, no depreciation, and no effect of price on demand. Here, that model is summarized and then modified to include depreciation and technological change. In addition, price elasticity of demand is discussed, though not incorporated into the model. Exponential functions are used for these modifications, as they are in the original model. Next, the augmented model is applied to the case of international satellite communications. Plausible ranges for the augmented model's parameters are derived for INTELSAT, the commercial, intergovernmental communications satellite co-operative. These values are used to calculate optimal capacity replenishment times, minimized discounted investment costs, and satellite capacities needed in early 1975 to satisfy the model. Implications for INTELSAT investment planning are drawn, and remaining methodological questions are considered.

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