Accounting for Semi-Permanence
28 Pages Posted: 6 Jun 2014
Date Written: June 4, 2014
Studies of intangible and of environmental assets have become key vehicles for the advancement of economists' understanding of capital. Each has features that diverge from those of the 'produced means of production' studied in capital theory. The present paper addresses issues in capital theory through an analysis based on an investment project. A project has many of the features attributed to capital in traditional theory. Beyond these, a project consists of various types of non-marketed capital that have no prices and of marketed capital that are sunk or irreversibly invested. While sunk, capital is valued at internal prices that have only a limited relation to external, market prices. A method of capital measurement is proposed that puts all types into a comprehensive analytical framework. Each type earns the market rate of interest. Conditions are presented for the internal prices.
Keywords: capital value, irreversible investment, sunk capital, options
JEL Classification: D24, D92
Suggested Citation: Suggested Citation