Quantifying Non-monotonicity in Productivity-Input Relations

Sasan Bakhtiari ()
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Sasan Bakhtiari: School of Economics, The University of New South Wales

No 2009-11, Discussion Papers from School of Economics, The University of New South Wales

Abstract: It is stylized that productivity and input size should relate positively and monotonically in the long run. In this paper, I present a theory that unifies the role of demand and production to investigate conditions that make this relation a bell-shape. Under the optimality assumption and when establishments operate in the same market, I quantify a simple algebraic condition on demand and production elasticities that governs the relation between productivity and input size. The case where establishments face different demands is also considered using a simple trade model and the implications are shown to be qualitatively the same. Supportive evidence is obtained from plant-level data on ready-mix concrete. Findings of this paper have important implications on how productivity dispersion and size distribution are formed within industries.

Keywords: Productivity; Size Distribution; Demand Elasticity; Returns to Scale (search for similar items in EconPapers)
JEL-codes: D21 D24 L11 L22 L25 L61 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2009-11
New Economics Papers: this item is included in nep-eff
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