Production Theory: Accounting for Firm Heterogeneity and Technical Change
Quaderni - Working Paper DSE N° 931
28 Pages Posted: 12 Mar 2014
Date Written: March 11, 2014
The paper presents a new framework to assess firm level heterogeneity and to study the rate and direction of technical change. Building on the analysis of revealed short-run production functions by Hildenbrand (1981), we propose the (normalized) volume of the zonotope composed by vectors-firms in a narrowly defined industry as an indicator of inter-firm heterogeneity. Moreover, the angles that the main diagonal of the zonotope form with the axes provide a measure of the rates and directions of technical change over time. The proposed framework can easily account for n-inputs and m-outputs and, crucially, the measures of heterogeneity and technical change do not require many of the standard assumptions from production theory.
Keywords: Production theory, Heterogeneous firms, Activity Analysis, Technical change, Zonotopes, Production functions
JEL Classification: D24, D61, C67, C81, O30
Suggested Citation: Suggested Citation