Abstract

http://ssrn.com/abstract=669621
 
 

References (13)



 


 



Were Cobb and Douglas Prejudiced? A Critical Re-analysis of their 1928 Production Model Identification


Cornelis A. Los


Alliant International University - Alliant School of Management; EMEPS Associates

February 19, 2005



Abstract:     
In 1928, Cobb and Douglas (C&D) presented a system analysis which established the first empirically identified production model, which forms the foundation for Solow's growth theory and research into productivity growth factors, such as "technological progress" and "human capital development". C&D claimed that their production model ("function") showed neutral economies of scale, i.e., constant returns to scale, with a labor production elasticity of 3/4 and a capital production elasticity of 1/4. A simple CLS analysis shows that C&D's data were incorrectly identified by an (n,q)=(3,1) linear model. C&D's claim that their neutral "constant returns of scale" was the inevitable scientific conclusion of their analysis was also incorrect, since that conclusion is strictly determined by their subjectively chosen projection direction. In fact, the data shows that with their model and identification technology constant, increasing and diminishing returns to scale are all three compatible with the uncertain data. Their (n,q)=(3,1) model was never identified with an acceptable level of scientific accuracy, with a maximum coefficient value variation of 212%. In contrast, a simple two-equation (n,q)=(3,2) system model can be accurately identified from C&D's data set, with an acceptable level of accuracy, with a maximum coefficient value variation of 7.4%.

Number of Pages in PDF File: 16

Keywords: System identification, noisy data, production model, elasticities, projections, complete least squares, accuracy

JEL Classification: B23, B24, B49, C21, C31, C52, C53

working papers series


Download This Paper

Date posted: February 22, 2005  

Suggested Citation

Los, Cornelis A., Were Cobb and Douglas Prejudiced? A Critical Re-analysis of their 1928 Production Model Identification (February 19, 2005). Available at SSRN: http://ssrn.com/abstract=669621 or http://dx.doi.org/10.2139/ssrn.669621

Contact Information

Cornelis A. Los (Contact Author)
Alliant International University - Alliant School of Management ( email )
10455 Pomerado Road
Rm. 119
San Diego, CA 92131-1799
United States
858-635-4783 (Phone)
858-635-4455 (Fax)
HOME PAGE: http://management.alliant.edu/
EMEPS Associates ( email )
United States
760-294-0255 (Phone)
858-635-4783 (Fax)
HOME PAGE: http://https://cgi.marquiswhoswho.com/OnDemand/Default.aspx?last_name=Los&first_name=Cornelis
Feedback to SSRN


Paper statistics
Abstract Views: 1,148
Downloads: 114
Download Rank: 137,850
References:  13

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo5 in 1.188 seconds