Arguments proposing the use of market discount rates for optimal investment criteria under conditions of “capital rationing” are examined. Several recent analyses assume one side of the capital market, either firms or individual investors, is subject to capital rationing while the other side is not. It is argued here that all market participants face perfect market opportunities or that none do. Several recent “solutions” are shown either to be consistent with the perfectly competitive market solution in which the familiar present value criterion is appropriate, or else to be fallacious.
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