Investment-Decision Criteria and Resource Allocation in Transition.

This paper develops an analytical framework to integrate static and dynamic effects of theoretically relevant and practically applied investment-decision criteria on the marginal rate of substitution between investment and labour. The new propositions are related to the ranking of relative present value, Kalecki's index of efficiency and the static version of recoupment period criteria. Investors in post-communist economies have switched from the recoupment period to the criteria based on discounting. This is an institutional change typical for these economies. It implies a choice of techniques with lower investment intensity, which is best supported by government's policy to promote labour mobility. Copyright 1997 by Kluwer Academic Publishers