Investment-decision criteria and resource allocation in transition

This paper develops an analytical framework tointegrate static and dynamic effects of theoreticallyrelevant and practically applied investment-decisioncriteria on the marginal rate of substitution betweeninvestment and labour. The new propositions are relatedto the ranking of relative present value, Kalecki'sindex of efficiency and the static version ofrecoupment period criteria. Investors in post-communisteconomies have switched from the recoupment period tothe criteria based on discounting. This is aninstitutional change typical for these economies. Itimplies a choice of techniques with lower investmentintensity, which is best supported by government'spolicy to promote labour mobility.