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Factor-specific technology choice

Jakub Growiec ()

No 265, NBP Working Papers from Narodowy Bank Polski, Economic Research Department

Abstract: We analyze the properties of a two-dimensional problem of factor-specific technology choice subject to a technology menu – understood as the choice of the degree of factor augmentation by a producing firm or the choice of quality of goods demanded by a consumer. By considering the problem in its generality, we are able to reach beyond the known results for Cobb–Douglas, CES, Leontief (minimum) and maximum functions. We demonstrate that the technology menu and the global function (envelope of local functions) are dual objects, in a well-defined generalized sense of duality. In the optimum, partial elasticities of (i) the local function, (ii) the technology menu and (iii) the global function are all equal and there exists a clear-cut, economically interpretable relationship between their curvatures. Invoking Bergson’s theorem, we also comment on the consequences of assuming homotheticity of the three objects, with a particular focus on technology menus constructed as level curves of idea (unit factor productivity) distributions.

Keywords: technology choice; technology menu; production function; utility function; duality; envelope; homotheticity. (search for similar items in EconPapers)
JEL-codes: C62 D11 D21 E21 E23 O47 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eff and nep-mac
Date: 2017
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