A Microfoundation for Normalized CES Production Functions with Factor-Augmenting Technical Change

Jakub Growiec

DEGIT Conference Papers from DEGIT, Dynamics, Economic Growth, and International Trade

Abstract: We derive the aggregate normalized CES production function from idea-based microfoundations where firms are allowed to choose their capital- and labor-augmenting technology optimally from a menu of available technologies. This menu is in turn augmented through factor-specific R&D. The considered model yields a number of interesting results. First, normalization can be maintained simultaneously at the local and at the aggregate level, greatly facilitating interpretation of the aggregate production function's parameters in terms of the underlying idea distributions. Second, in line with earlier findings, if capital- and labor-augmenting ideas are independently Weibull-distributed then the aggregate production function is CES; if they are independently Pareto-distributed, then it is Cobb-Douglas. Third, by disentangling technology choice by firms from R&D output, one can draw a clear-cut distinction between the direction of R&D and the direction of technical change actually observed in the economy, which are distinct concepts. Finally, it is argued that the Weibull distribution should be a good approximation of the true unit factor productivity distribution (and thus the CES should be a good approximation of the true aggregate production function) if a \technology" is in fact an assembly of a large number of complementary components.

Keywords: CES production function; normalization; Weibull distribution; direction of technical change; directed R&D; optimal technology choice (search for similar items in EconPapers)
JEL-codes: E23 E25 O47 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2011-09
New Economics Papers: this item is included in nep-eff, nep-ino and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://degit.sam.sdu.dk/papers/degit_16/c016_013.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to degit.sam.sdu.dk:80 (No such host is known. )

Related works:
Journal Article: A microfoundation for normalized CES production functions with factor-augmenting technical change (2013)
Working Paper: A microfoundation for normalized CES production functions with factor-augmenting technical change (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:deg:conpap:c016_013

Access Statistics for this paper

More papers in DEGIT Conference Papers from DEGIT, Dynamics, Economic Growth, and International Trade Contact information at EDIRC.
Bibliographic data for series maintained by Jan Pedersen ().