Capital Misallocation Index (CMI)

The Capital Misallocation Index (CMI) is a conceptual framework for evaluating how efficiently financial, physical, and human capital are allocated within an economy, industry, organization, or system.

Capital misallocation occurs when resources are persistently directed toward low-productivity, low-return, or structurally unsustainable uses while higher-value opportunities remain underfunded. Over time, such distortions can reduce growth, suppress innovation, and weaken systemic resilience.

Conceptual Scope

The Capital Misallocation Index is not a single fixed formula, but rather an analytical construct intended to support comparative assessment across time, sectors, or environments. It may be applied at multiple levels, including national economies, financial markets, corporate investment strategies, and public policy frameworks.

Common sources of capital misallocation include information asymmetry, incentive misalignment, regulatory distortion, excessive risk concentration, and delayed feedback mechanisms.

Interpretive Use

A higher CMI value generally indicates a greater divergence between where capital is deployed and where it could generate sustainable long-term value. Conversely, a lower CMI suggests more effective alignment between capital flows and productive outcomes.

The index is intended as a diagnostic and comparative tool rather than a predictive or prescriptive instrument.

Analytical Context

The concept of capital misallocation has roots in economic growth theory, financial economics, and organizational analysis. The Capital Misallocation Index formalizes this idea into a structured lens for discussion, research, and measurement.