The Fisher/Cobb-Douglas Paradox, Factor Shares, and Cointegration

13 Pages Posted: 11 Jun 2007

See all articles by Robert S. Chirinko

Robert S. Chirinko

University of Illinois at Chicago, Department of Finance; CESifo (Center for Economic Studies and Ifo Institute)

Debdulal Mallick

Emory University - Department of Economics

Date Written: May 2007

Abstract

This note uses insights from cointegration analysis to reexamine two separate but related issues concerning the estimation of production function parameters. Fisher (1971) documented a paradox in estimating substitution elasticities -- the puzzling divorce between the technology underlying his simulated data and the technology estimated from these data. This note both resolves the Paradox and, based on this resolution, raises important questions about estimation strategies (pioneered by Caballero, 1994) that rely on cointegration to recover production function parameters.

Keywords: production function elasticities, cointegration

JEL Classification: C22, E23

Suggested Citation

Chirinko, Robert S. and Mallick, Debdulal, The Fisher/Cobb-Douglas Paradox, Factor Shares, and Cointegration (May 2007). CESifo Working Paper Series No. 1998. Available at SSRN: https://ssrn.com/abstract=992698

Robert S. Chirinko (Contact Author)

University of Illinois at Chicago, Department of Finance ( email )

2431 University Hall (UH)
601 S. Morgan Street
Chicago, IL 60607-7124
United States

HOME PAGE: http://tigger.uic.edu/~chirinko/

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Debdulal Mallick

Emory University - Department of Economics ( email )

1602 Fishburne Drive
Atlanta, GA 30322
United States

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