Essential Inputs and Unbounded Output: an Alternative Characterization of the Neoclassical Production Function

Andreas Irmen and Alfred Maussner ()

DEM Discussion Paper Series from Department of Economics at the University of Luxembourg

Abstract: The Inada (1963) conditions constitute a defining property of the neoclassical production function with capital and labor as arguments. Are these conditions justifiable on economic grounds? Yes, they are: we show that a production function with positive, yet diminishing marginal products and constant returns to scale satisfies the Inada conditions if i) both inputs are essential and ii) an unbounded quantity of either input leads to unbounded output. This allows for an alternative characterization of the neoclassical production function that altogether dispenses with the Inada conditions. Moreover, we establish that the marginal product of capital vanishes as capital goes to infinity if labor is an essential input. Given the intuitive appeal of the latter feature, we conclude that the neoclassical growth model is a theory of eventual stagnation.

Keywords: Neoclassical Growth Model; Capital Accumulation; Stagnation; Inada Conditions (search for similar items in EconPapers)
JEL-codes: E10 O10 O40 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-gro and nep-mac
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Working Paper: Essential Inputs and Unbounded Output: An Alternative Characterization of the Neoclassical Production Function (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:luc:wpaper:14-27

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