The Shape of Production Function and the Direction of Technical Change

37 Pages Posted: 14 May 2004 Last revised: 30 Jul 2010

See all articles by Charles I. Jones

Charles I. Jones

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Date Written: May 2004

Abstract

This paper views the standard production function in macroeconomics as a reduced form and derives its properties from microfoundations. The shape of this production function is governed by the distribution of ideas. If that distribution is Pareto, then two results obtain: the global production function is Cobb-Douglas, and technical change in the long run is labor-augmenting. Kortum (1997) showed that Pareto distributions are necessary if search-based idea models are to exhibit steady-state growth. Here we show that this same assumption delivers the additional results about the shape of the production function and the direction of technical change.

Suggested Citation

Jones, Charles I., The Shape of Production Function and the Direction of Technical Change (May 2004). NBER Working Paper No. w10457. Available at SSRN: https://ssrn.com/abstract=537802

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