A Note on Reswitching and Intertemporal Prices

Abstract

Bliss (Capital Theory and Distribution of Income, Amsterdam/New York: North-Holland/Elsevier) claims that reswitching is nothing but an ‘optical illusion’ due to the exclusion of non-stationary price sequences from the analysis. This note develops this point. The standard case for choice of techniques and reswitching is reformulated in terms of Arrow-Debreu intertemporal prices and the conditions making these prices stationary are highlighted separately. It is then shown that the analysis of the choice of techniques in terms of ‘switch points’ requires stationary conditions.