NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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The Microeconomic Foundations of Aggregate Production Functions

David Baqaee, Emmanuel Farhi

NBER Working Paper No. 25293
Issued in November 2018, Revised in November 2019
NBER Program(s):Economic Fluctuations and Growth Program, International Trade and Investment Program, Monetary Economics Program, Public Economics Program

Aggregate production functions are reduced-form relationships that emerge endogenously from input-output interactions between heterogeneous producers and factors in general equilibrium. We provide a general methodology for analyzing such aggregate production functions by deriving their first- and second-order properties. Our aggregation formulas provide non-parameteric characterizations of the macro elasticities of substitution between factors and of the macro bias of technical change in terms of micro sufficient statistics. They allow us to generalize existing aggregation theorems and to derive new ones. We relate our results to the famous Cambridge-Cambridge controversy.

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Document Object Identifier (DOI): 10.3386/w25293

 
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