What is the exact difference between Productive and non-productive investment? There is no hard and fast distinction that I could find. Additionally, Is it correct for me to label non-productive investment as speculative investment?
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How do you define productive investment and how do you define unproductive investment? – 1muflon1 Sep 07 '20 at 16:54
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@1muflon1 that was the question! – user253751 Sep 07 '20 at 17:51
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@user253751 but non-productive investment is not an a term that would have some set definition. Moreover, the OP is asking for the difference between the two. For that we first have to come up with some definition. – 1muflon1 Sep 07 '20 at 17:55
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@user253751 To show what I mean I seen the word used in papers for an investment that has negative NPV, but I also seen the word to be applied to investments that let’s say help company to capture rents and are unproductive from societal point of view. I also seen the word used in few other contexts as well. Depending on which of the above definitions OP wants to use answer will be different – 1muflon1 Sep 07 '20 at 18:04
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@1muflon1 Would it help if I re-worded the question for you? "What does it mean for an investment to be productive or non-productive?" – user253751 Sep 07 '20 at 18:09
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@user253751 well but that is exactly the problem it can mean multiple things as unproductive investment does not have set definition like let’s say marginal cost. If unproductive investment can mean multiple things depending on what paper or book you are looking then it’s extremely broad question. – 1muflon1 Sep 07 '20 at 18:17
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@1muflon1 Sounds like an answer. And marginal cost can mean different things. It can mean the cost of producing the next unit from an individual or societal point of view. It could also mean the cost to produce a margin (whatever that is). It could also mean a very small, unimportant cost. – user253751 Sep 07 '20 at 18:26
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@user253751 but marginal cost can have different meanings in plain English but in academic literature it’s almost exclusively used in one meaning whereas that does not hold for productive or unproductive investment. But I guess you are right that answer here would simply be it depends on what paper you look at – 1muflon1 Sep 07 '20 at 18:36
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As noted above, there is no universal definition of "productive investment". In theory papers this term usually means that the output of investment project is higher than its cost in any state of the world. Therefore, from social welfare point of view, it is optimal to always take this investment project. – Moysey Abramowitz Sep 08 '20 at 01:28