The Shape of Production Function and the Direction of Technical Change
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NBER Working Paper No. 10457
Issued in May 2004
NBER Program(s): EFG PR
This paper views the standard production function in macroeconomics as a reduced form and derives its properties from microfoundations. The shape of this production function is governed by the distribution of ideas. If that distribution is Pareto, then two results obtain: the global production function is Cobb-Douglas, and technical change in the long run is labor-augmenting. Kortum (1997) showed that Pareto distributions are necessary if search-based idea models are to exhibit steady-state growth. Here we show that this same assumption delivers the additional results about the shape of the production function and the direction of technical change.
Published: Jones, Charles I. "The Shape Of Production Functions And The Direction Of Technical Change," Quarterly Journal of Economics, 2005, v120(2,May), 517-549.
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