A Theory of Production, Investment, and Disinvestment

Rural change often involves altering the combination of durable assets owned by an economic unit. Rural change may involve the acquisition of additional durables, the disposal of current durables, or using retained durables in a different manner. The current theories of production, investment, and disinvestment in durable assets do not handle accurately the issues relating to using durable assets at varying rates, nor do they specify completely the related issue of the optimal length of life for durable assets. In this paper, we consider a production process which has both durable assets and the flow of services from the durables as inputs. We allow for a varying extraction rate and determine internally both the optimal amount of services to extract from the durable in each production period as well as the optimal life for the durable. We relate the optimal production activities associated with the durable to investments and disinvestments in the durable. The economic theory which guides decisions concerning these changes is important to decisionmakers at micro, regional, national, and supranational levels.

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 Record created 2017-04-01, last modified 2019-08-30

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