User Costs versus Waiting Services and Depreciation in a Model of Production

Summary The paper develops an extension of a one period model of production involving beginning and end of the period capital stocks along with output and input flows that is due to Hicks and Edwards and Bell. This generalized Austrian model of production takes into account that end of the period capital stocks result from: (i) purchases of new investment goods; (ii) internal construction of firm capital stock components and (iii) holdings of (depreciated) capital goods that were held by the firm at the beginning of the period. These different methods of creating end of period holdings of capital stocks generally have different resource requirements and hence the one period production possibilities set is more complex than the usual one. This general model of production is used to justify the decomposition of the Jorgensonian user cost of capital into separate waiting services and depreciation components.