Capital and capacity utilization revisited: A theory for ICT-assisted production systems

In this paper we present a framework as how to analyze capital and capacity utilization issues with reference to production processes heavily characterized by the use of ICT. We derive this framework by developing in original way the fund–flow model of Georgescu-Roegen, one of the pioneers of the capital utilization analysis, since this model is able to capture many qualitative aspects of production, above all the issue of the different time profile of use of the production elements.In the economic literature capital utilization is often equated with capacity utilization. However, if we refer to the neo-classical production analysis, this is true only if there is but one fixed input (capital) and if production is characterized by constant returns of scale. In a different way, we study capital and capacity utilization issues under the hypothesis of increasing returns of scale, particularly significative in ICT-assisted productions. The main contribution of the paper is to show that an important way of varying capital utilization is through the flexibility of a ‘machine’ to perform some tasks at the same time and the ability of ICT to exploit economically these possibilities. The analysis addresses a partial equilibrium level. Moreover, we show as our framework could be extended to include the case of multi-production with heterogeneous capital.