A NOTE ON LINEAR PROGRAMMING AND CAPITAL BUDGETING

This follows Carleton's presentation [2], to which the reader is referred for a full summary of the controversy and for discussion of a number of side issues not treated here. The major issue raised by Baumol and Quandt is that:' the discount factors (1 + k) -t in solution must equal ratios of the internal discount factors. Since we acknowledge the existence of capital rationing, k must itself be internally determined and hence be independent of monetary phenomena. However, if we assume that k is a true marginal opportunity rate, then it turns out that we cannot