Morrison's measure of capacity utilization: A critique

Abstract

Morrison (1986) has developed and used new capacity utilization measures based on an optimization framework to adjust productivity growth for changes in capacity utilization. She argues that we can adjust productivity growth for variations in capacity utilization by dividing a conventional productivity growth rate by a capacity utilization measure. However, Morrison's analysis is based on a conceptual error, which she recognizes in later research. This error can have considerable empirical significance.