Are Financial Variables Inputs in Delivered Production Functions?

Roger Betancourt, Miguel Kiguel

Abstract


Fischer's classic (1974) paper develops conditions under which it is appropriate to use money as an input in a 'delivered' production function. In this paper, we extend Fischer's model I (the Baumol-Tobin inventory approach) by incorporating credit into the analysis. Our investigation of the extended model brings out a very restrictive but necessary implicit assumption employed by Fischer to treat money as an input. Namely. that there exists a binding constraint on the use of money! A similar result holds for our more general model.

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