Quarterly Journal of Economics Vol. 120 No. 2 2005
The Shape of Production Functions and the Direction of Technical Change*
Abstract
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.
- DOI
- 10.1162/0033553053970142
- Volume
- 120
- Issue
- 2
- Pages
- 517-549
- Language
- en
- Sources
- openalex crossref