Factor Price Variation and the Hicksian Hypothesis: A Microeconomic Model

Ryuzo Sato and Rama Ramachandran

Oxford Economic Papers, 1987, vol. 39, issue 2, 343-56

Abstract: This paper uses a straightforward extension of the model of a profit-maximizing firm to consider biased technical progress. The firm faces increases in produ ction costs because of differential growth in input prices. A researc h program can increase the efficiencies of these factors. The firm us es optimal control to balance the cost of research with the benefits. The authors then examine sufficient conditions for saddle-point conv ergence to a steady state where the growth in efficiencies matches th e growth in input prices. This leads to some surprising conclusions. Copyright 1987 by Royal Economic Society.

Date: 1987
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