Differential Depreciation and the 2 X 2 Model of Distribution, Pricing and Production
8 Pages Posted: 8 May 2006
In a two-sector model it is entirely arbitrary to take the depreciation rate to be the same in both sectors; capital is being used differently in the two sectors! With differential depreciation rates factor-intensity-reversal can arise even when both sectors have a Cobb-Douglas technology. Efficient allocations do not involve mutual tangency points between consumption-good and capital-good isoquants.
Suggested Citation: Suggested Citation