An investigation of issues relating to where energy should enter the production function

Patrizio Lecca, John Swales () and Karen Turner

Economic Modelling, 2011, vol. 28, issue 6, 2832-2841

Abstract: This paper examines the impact of imposing different separability assumptions in the specifications of the standard hierarchical KLEM production function in a computable general equilibrium (CGE) model. The appropriate means of introducing energy to production functions has been a source of debate for a number of years. However, while modellers often subject results to parametric sensitivy analysis regarding the values associated with elasticities of substitution between inputs, it is rarely the case that the structure of the production function is subjected to testing. However, the chosen structure reflects the modeller's view about elasticity between different inputs and will have implications for model results wherever there are changes in relative prices. We illustrate our argument by introducing a simple demand shock to a CGE model of the Scottish economy (targeted at the energy supply sector) under different assumptions regarding the structure of the KLEM production function and separability assumptions therein.

Keywords: General equilibrium; KLEM production function; Separability assumptions (search for similar items in EconPapers)
JEL-codes: C68 D57 D58 Q41 Q43 R15 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

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Working Paper: An investigation of issues relating to where energy should enter the production function (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:28:y:2011:i:6:p:2832-2841

DOI: 10.1016/j.econmod.2011.08.014

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