Alternative Specifications of Economies of Scale

Economies of complicate the economic system. Economists, therefore, have tended to assume implicitly or explicitly that there are 4constant returns to Both the theories of economic growth and of income distribution have been developed on this basis. In statistical studies this assumption has been either directly introduced or indirectly implied. The correspondence of labour and capital shares to the exponents in the Cobb-Douglas production function has been considered to be consistent with the existence of constant returns to In cases where the sum of the exponents exceeds unity, the results are sometimes not accepted. Having obtained such results, Professor Solow dismissed them by saying, have reasons not to accept these results at their face value,2 though he gave no reasons. The arguments advanced in support of constant returns to scale can be questioned. No doubt there are some industries in which the optimum size of the enterprise is small in relation to the total market; but in others a few firms do control a large share of the (large) total supply, even though textbook pure monopolies are rare. On the statistical side too, support for the constant-returns assumption involves rejection of the increasing number of results suggesting economies of scale. For accepted results moreover, the argument as to returns to scale, depends specifically on the Cobb-Douglas production function, which assumes a unitary elasticity of substitution between the factors of production. Independent evidence is now accumulating, and it does suggest that in many cases the elasticity is not unity. In what follows an attempt is made to examine the problem of economies of in greater detail, and to bring to bear on it further statistical evidence. Section I considers different ways of specifying the production function, including returns to as a parameter. In Section II we estimate the different relationships for two different time series referring to two different sectors of the US economy. Having estimated the returns to on different hypotheses, we compare the results. In Section III an attempt is made to quantify the contribution of economies of to productivity movements

Capital (architecture) · Constant (computer programming) · Constant elasticity of substitution · Econometrics · Economics · Economies of scale · Elasticity of substitution · Mathematical economics · Microeconomics · Production (economics) · Production function · Returns to scale · Unitary state · Economic Growth and Productivity · Economic theories and models · Economic Theory and Policy

• Constrained Joint Estimation of Factor Demand and Production Functions

  Robert M Coen, Bert G Hickman•The Review of Economics and…•1970

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• Nonlinear Estimation of Aggregate Production Functions

  Ronald G Bodkin, Lawrence R Klein•The Review of Economics and…•1967

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• Capital-Labor Substitution and Economic Efficiency

  K J Arrow, Hollis B Chenery et al.•The Review of Economics and…•1961

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• A Note on Economies of Scale

  A A Walters•The Review of Economics and…•1963

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• Technical Change and the Aggregate Production Function

  Robert M Solow•The Review of Economics and…•1957

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