The Fund-Flow Approach: A Critical Survey
43 Pages Posted: 10 Nov 2009 Last revised: 19 Nov 2010
Date Written: November 10, 2009
The fund-flow approach to production theory was first proposed by Nicholas Georgescu-Roegen almost half a century ago. Since then, from time to time it has received attention, but, probably because of its analytical complexity and difficulty to deliver sound operational conclusions, it is now almost abandoned. The approach has been also recently criticized for its instrumental assumption of constant efficiency of funds, by emphasizing its limitations in addressing issues related to fixed capital depreciation.
The paper critically surveys Georgescu-Roegen’s original model, together with the later developments and modifications. It also discusses the recent criticisms. The conclusion is that, despite its drawbacks, the fund-flow approach has a “competitive advantage” in the actual description of production as a process unfolding in time and entailing a temporal coordination between different elements. In this respect, it seems that most of its fruitful applications have yet to come.
Keywords: Fund-flow model, Georgescu-Roegen, Production theory, Returns to scale, Technical coefficients
JEL Classification: B29, B59, C67, D24, L23, O33
Suggested Citation: Suggested Citation