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A new class of production functions and an argument against purely labor‐augmenting technical change
Author(s) -
Growiec Jakub
Publication year - 2008
Publication title -
international journal of economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 11
eISSN - 1742-7363
pISSN - 1742-7355
DOI - 10.1111/j.1742-7363.2008.00090.x
Subject(s) - economics , microfoundations , elasticity of substitution , constant elasticity of substitution , pareto principle , technical change , production function , microeconomics , mathematical economics , neoclassical economics , production (economics) , keynesian economics , productivity , macroeconomics , operations management
This paper derives the macro‐level production function from idea‐based microfoundations. Labor‐augmenting and capital‐augmenting developments are assumed to be Pareto‐distributed and mutually dependent. Using the Clayton copula family to capture this dependence, a new “Clayton–Pareto” class of production functions is derived that nests both the Cobb–Douglas and the constant elasticity of substitution. In the most general case, technical change is not purely labor‐augmenting over the long run, but it augments both capital and labor. Under certain parametrizations, the derived elasticity of substitution between capital and labor exceeds unity and, therefore, gives rise to long‐run endogenous growth.