The Production of Increasing Returns: Physical Technology, Institutional Technology, and the Pitfalls of Production Functions

21 Pages Posted: 4 Jul 2015 Last revised: 12 Dec 2020

See all articles by Santiago Jose Gangotena

Santiago Jose Gangotena

Universidad San Francisco de Quito USFQ

Ryan Safner

Hood College

Date Written: July 9, 2016

Abstract

Economists often model the delicate relationship between production, innovation, and economic growth as a production function that exhibits increasing returns to scale (IRS). The existence of "knowledge spillovers" or "learning by doing" often implies conclusions about the optimal use of protectionist trade and industrial policies that increase national welfare by artificially reallocating productive resources in order to exploit IRS. We argue this often fails to capture the institutions that govern entrepreneurial production choices. By clarifying the nature and economic relationships of information, and the limitations of existing models of production, we contribute a new understanding of research with applications to innovation, economic growth, and trade policy.

Keywords: Technology, innovation, Increasing returns to scale, learning by doing, production functions, protectionism, industrial policy, institutions

JEL Classification: D20, O25, O38

Suggested Citation

Gangotena, Santiago Jose and Safner, Ryan, The Production of Increasing Returns: Physical Technology, Institutional Technology, and the Pitfalls of Production Functions (July 9, 2016). Available at SSRN: https://ssrn.com/abstract=2626587 or http://dx.doi.org/10.2139/ssrn.2626587

Santiago Jose Gangotena (Contact Author)

Universidad San Francisco de Quito USFQ ( email )

Diego de Robles y Vía Interoceánica
Campus Cumbayá
QUITO, PICHINCHA 17-1200-84
Ecuador

Ryan Safner

Hood College ( email )

401 Rosemont Avenue
Frederick, MD 21701
United States

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