The Sledge on the Slope or: Energy in the Economy, and the Paradox of Theory and Policy

Dietmar Lindenberger () and Reiner Kümmel ()
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Dietmar Lindenberger: Energiewirtschaftliches Institut an der Universitaet zu Koeln
Reiner Kümmel: Universität Würzburg, Theoretische Physik I

No 2013-3, EWI Working Papers from Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI)

Abstract: Energy conversion in the production of goods and services, and the resulting emissions associated with entropy production, have not yet been taken into account by the mainstream theory of economic growth. Novel econometric analyses, however, have revealed energy as a production factor whose output elasticity, which measures its productive power, is much higher than its share in total factor cost. This, although being at variance with the notion of orthodox economics, is supported by the standard maximization of profit or time-integrated utility, if one takes technological constraints on capital, labor, and energy into account. The present paper offers an explanation of these findings in the picture of a sledge, which represents the economy, on the slope of a niveous mountain, which represents cost. Historical economic trajectories indicate that the representative entrepreneur at the controls of the sledge steers his vehicle with due regard of the barriers from the technological constraints, observing “soft” constraints, like the legal framework of the market, in addition. We believe that this perspective contributes to resolving the paradox that energy hardly matters in mainstream growth theory, whereas it is an issue of growing importance in international policy.

Keywords: energy; economic growth; oil price; profit maximization; technological constraints; output elasticities (search for similar items in EconPapers)
JEL-codes: O11 Q43 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2013-02-18
New Economics Papers: this item is included in nep-ene, nep-his, nep-hme and nep-hpe
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