The Fossil Production Function in a Vintage Model

Thomas Michl

Australian Economic Papers, 2002, vol. 41, issue 1, 53-68

Abstract: This paper extends the fossil production function to incorporate embodied technical change. The fossil production function provides an alternative to the standard neoclassical explanation for the aggregate production function. In a Classical Ricardian spirit, the paper assumes that capital‐using, labour saving technical change prevails, and shows that it generates a fossil production function in Cobb‐Douglas form. The power term of the production function mediates the viability of new machines. A sufficient condition for viability is that the power term equals or exceeds the profit share on new machines. Empirical estimates show that this sufficient condition is satisfied, a result inconsistent with the neoclassical interpretation of the aggregate production function.

Date: 2002
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