A Firm’s Model of Production: The Elasticity of Technical Substitution of Labor and the Interaction Between R&D and Advertising

María Dolores Guilló ()
Additional contact information
María Dolores Guilló: Department of Economics, Universidad de Alicante, Spain

No 24-2, QM&ET Working Papers from University of Alicante, D. Quantitative Methods and Economic Theory

Abstract: This article develops a model of the firm with endogenous labor-augmenting productivity and product perceived-quality. In this setup knowledge capital and advertising expenditures determine jointly the perceived quality of the firm’s product, which in turn influences the firm’s investment in R&D. It shows that R&D and advertising investments are substitutes and that the degree of substitution is positively related to the elasticity of technical substitution of labor. Moreover, higher relative wages induce more R&D (less advertising) and higher labor productivity if this elasticity is below one. This result is reversed if the elasticity of substitution is above one, but relative wages have no effect on intangible investments in the case of a unitary elasticity.

Keywords: Advertising; R&D; intangible capital; productivity; production function; firm behavior (search for similar items in EconPapers)
JEL-codes: D21 D24 L20 L21 O30 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2024-08-26
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
https://web.ua.es/es/dmcte/documentos/qmetwp2402.pdf Full text (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:ris:qmetal:2024_002

Access Statistics for this paper

More papers in QM&ET Working Papers from University of Alicante, D. Quantitative Methods and Economic Theory Contact information at EDIRC.
Bibliographic data for series maintained by Julio Carmona ().