The truncation of investment flows

Abstract

In finance, the economic evaluation of an intertemporal flow of investments may lead to opposite conclusions according as the present value criterion or the internal rate of return (IRR) criterion is retained. However, when the lifetime of the project results from an economic choice, the criteria are reconciled for the competitive sequence. When the flows are expressed in physical terms, a generalization of the notion of IRR allows us to show that multisector fixed-capital models with a given real wage behave like single-product systems. The competitive rate of return has a maximality property. The paper revises the logical and chronological relationships between neo-Austrian and Sraffian fixed-capital models.