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How Large Are Returns to Scale in the U.S.? A View Across the Boundary

Thomas Lubik ()

Economic Quarterly, 2016, issue 1Q, 79-103

Abstract: I study the degree of returns to scale in aggregate U.S. data by estimating the standard RBC model with and without variable capacity utilization using Bayesian methods. The source of increasing returns is the presence of an externality in production. I find that, at best, returns are mildly increasing at a level statistically indistinguishable from the constant-returns case. A high enough degree of increasing returns is needed to support equilibrium indeterminacy and sunspot-driven business cycle fluctuations. In my estimation results, I find that I can conclusively rule out this possibility on account of a low estimated degree of increasing returns and a fairly inelastic labor supply.

Keywords: RBC model; business cycles (search for similar items in EconPapers)
Date: 2016
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Working Paper: How Large Are Returns to Scale in the U.S.? A View Across the Boundary (2004) Downloads
Working Paper: How Large Are Returns to Scale in the U.S.? A View Across the Boundary (2004) Downloads
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DOI: 10.21144/eq1020103

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