A note on myopic decision rules in the neoclassical theory of producer behaviour

Abstract

The paper presents a theoretical framework for analysing investment behaviour in a perfect neoclassical environment. The model distinguishes explicitly between capital units of different age. In coherence with the neoclassical assumptions, these vintages can be straightforwardly aggregated. Furthermore, perfect second-hand markets for used capital exist. Mhen the capital market is in equilibrium, the producer will be indifferent between investing in different vintages. Given this, it is shown that myopic decisions are consistent with rational, optimizing behaviour, and that a simple additive user cost formula is valid independently of the form of capital deterioration.