[OPE-L:5230] Re: Reproduction Costs vs. Replacement Costs

Duncan K. Foley (dkf2@columbia.edu)
Tue, 10 Jun 1997 10:57:51 -0700 (PDT)

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In reply to Andrew's OPE-L:5220:

In your explanation of the difference between reproduction cost (P(t)) and
replacement cost (P(t+1)), you noted that reproduction cost was not the
same as historical cost (P(t-k)). These periods I take to be accounting, or
observation periods, conceptually separate from the period of production
(since you are thinking of some of the inputs as having been purchased k
periods ago.) The production period is a real calendar concept: it takes 3
months, or 6 weeks, or whatever, for a product to pass from raw materials
to finished goods. On the other hand, we can account for prices in a
variety of different periods: monthly, quarterly, weekly, daily, etc. So I
was wondering if you had thought about the difference between reproduction
cost and replacement cost when the accounting period becomes very small
(hourly, say), though obviously the production period would remain constant
(3 months, for example).


>In ope-l 5216, Duncan wrote:
>"Have you thought about this assuming that, while the production period stays
>constant, the accounting period becomes smaller and smaller? It's nice to
>the mathematics of an accounting convention invariant to this type of
>transformation of the treatment of time."
>I'm sorry, I don't get the point. Would you please elaborate? What does the
>accounting period have to do with this?
>Andrew Kliman

Duncan K. Foley
Department of Economics
Barnard College
New York, NY 10027
fax: (212)-854-8947
e-mail: dkf2@columbia.edu