Overhead labour and bounded substitutability
SummaryIn this paper we argue that due to the presence of quasi-fixed overhead labour, the aggregate short-run production function of the industry has the property of bounded substitutability. That is, when employing overhead labour, the industry will only be able to earn a positive quasi-rent for a bounded interval of aggregate labour intensity.
The distribution approach to the aggregation of production functions
We shall argue below that the distribution approach to the aggregation of production functions provides an useful framework to analyse the production structure of an economy and enhances our understanding of it. The distribution approach was initiated by Houthakker (1956), elaborated by Johansen (1972) and extented by Sato (1975). Apart from summarising the main features of the distribution approach developed by these authors in a consistent framework, we also add new insights. Some of these insights stem from our earlier research, e.g. the interpretation of the aggregate short-run production function and the estimation of the capacity distribution. However, the extension of the analysis to economy-wide aggregation has not been presented before. The same holds for the role capital plays according to the distribution approach in both the short-run and in the long-run production function.An important feature of the distribution approach is that the production structure of an economy is seen as the result of both management decisions and technological possibilities. Moreover, the approach enables us to identify production units and their production functions at any desired micro level. As a consequence, the influence of technological change on the production structure can be analysed extensively. The same holds for changes in output prices and factor prices, through their influence on management decisions.
Transformed beta-capacity distribution of production units.
Abstract In this paper the capacity distributions corresponding to several well-known aggregate production functions (Cobb-Douglas, CES and VES) are derived. It is shown that these distributions can be transformed to beta-distributions in a straightforward way.