economics as faith (6)

Everything you wanted to know about aggregate production functions, but were afraid to ask, is available in a long survey paper. The authors end their survey on a pessimistic note.

This paper has aimed at providing a survey of the dense literature on aggregation in production with a view to drawing lessons for the applied economist. It is difficult to find an optimistic note on which to close. As far back as 1963, in his seminal survey on production and cost, Walters had concluded: “After surveying the problems of aggregation one may easily doubt whether there is much point in employing such a concept as an aggregate production function. The variety of competitive and technological conditions one finds in modern economies suggest that one cannot approximate the basic requirements of sensible aggregation except, perhaps, over firms in the same industry or for narrow sections of the economy”. More recently [1980] Burmeister, also after surveying the literature, concluded: “I am not very optimistic […] I have one revolutionary suggestion: Perhaps for the purpose of answering many macroeconomic questions–particularly about inflation and unemployment–we should disregard the concept of a production function at the macroeconomic level. The economist who succeeds in finding a suitable replacement will be a prime candidate for a future Nobel prize”.

Jesus Felipe and Franklin M. Fisher, “Aggregation in Production Functions: What Applied Economists should Know”, Metroeconomica 54:2-3 (2003), 208-262.

Spanish economist Jose Felipe works for the Asian Development Bank (ADB)in Manila. Franklin Fisher (1934-), we noted yesterday, is Professor Emeritus of Microeconomics at MIT.  A pre-publication (June 2002) draft of their paper is available here.

The references are to A.A. Walters,  “Production and Cost Functions: An Econometric Survey”, Econometrica 31:1-2 January- April 1963), pp.1-66  and to Edwin Burmeister, “Comment”, In Dan Usher (ed.): The Measurement of Capital (University of Chicago Press, 1980), pp. 420-431.

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