TITLE:
Undesired Excess Capacity and Equilibrium in an Advanced Market Economy
AUTHORS:
Andrea Pannone
KEYWORDS:
Undesired Excess Capacity; Production Theory; Macroeconomic Equilibrium; ICT; Ex-Post Sunk Cost
JOURNAL NAME:
Modern Economy,
Vol.4 No.11,
November
22,
2013
ABSTRACT: In this paper I attempt to give
theoretical foundation to the concept of undesired excess capacity that I
define as an unwilling, persistent mismatch between
productive capacity and final demand. Undesired excess capacity has traditional
room only in oligopolistic framework, like in Keynesian and Post-Keynesian
models. Otherwise I show the possibility of its existence (and persistence)
also with reference to a perfectly competitive economy where firms use
massively information and communication technologies (ICT). In this stylized
economy, undesired
excess capacity is associated with “ex-post” sunk costs, in terms of mismatch between total revenues and production
costs. My approach, which draws a production theory alternative to the
neoclassical one, makes it possible to account for these costs and connect them
to the role of
money, under the form of
credit, in the continuation of the economic process. Moreover, in the conclusion of this paper, I show how the notion of
equilibrium that emerges from the analysis could be useful to address the issue
of dynamics.