Abstract
This study attempts to estimate the magnitude of the output loss that can be attributed to differential capital charges in Soviet industry. It does this by estimating the quantity of resources that could be freed if the observed output of each industry were produced not with the observed combination of capital and labor, but with an efficient combination--defined as the combination that equates the marginal rate of equal-product substitution of capital for labor in each industry to the equilibrium factor price ratio. Subject to a number of assumptions, the model developed here indicates that, in the period 1960-64, a reallocation of capital and labor that equalized factor returns among the main Soviet industrial sectors, holding the level and mix of output constant, would have freed resources with an annual value equal to 3-4 percent of value added in the industries covered.
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