A Theory of Production, Investment, and Disinvestment
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Rural change often involves altering the combination of durable assets owned by
an economic unit. Rural change may involve the acquisition of additional
durables, the disposal of current durables, or using retained durables in a
different manner. The current theories of production, investment, and
disinvestment in durable assets do not handle accurately the issues relating to
using durable assets at varying rates, nor do they specify completely the related
issue of the optimal length of life for durable assets. In this paper, we consider
a production process which has both durable assets and the flow of services from
the durables as inputs. We allow for a varying extraction rate and determine
internally both the optimal amount of services to extract from the durable in
each production period as well as the optimal life for the durable. We relate
the optimal production activities associated with the durable to investments and
disinvestments in the durable. The economic theory which guides decisions
concerning these changes is important to decisionmakers at micro, regional,
national, and supranational levels.