Capital-labor substitution and misallocation

Debdulal Mallick and Nabeel Maqsood

MPRA Paper from University Library of Munich, Germany

Abstract: We explore the role of the elasticity of substitution between capital and labor (σ) in misallocation of resources. We show, both analytically and empirically using the cross-country firm level survey data, that the extent of misallocation is substantially large for low σ compared to the Cobb-Douglas value of one that the extant literature invariably assumes. When σ is low, dispersion in marginal products of capital across firms will be larger for given dispersion in capital-labor ratios because marginal product now declines more rapidly with increasing capital. The extent of misallocation is even larger when σ varies across firms. Given the overwhelming evidence that σ

Keywords: misallocation; elasticity of substitution; CES production function; total factor productivity (search for similar items in EconPapers)
JEL-codes: D24 O11 O14 O47 (search for similar items in EconPapers)
Date: 2022-10
New Economics Papers: this item is included in nep-bec and nep-eff
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/115090/1/MPRA_paper_115090.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/116587/1/MPRA_paper_116587.pdf revised version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:115090

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().