The economic market outcomes and income distribution when capital is not homogeneous: Limits of technology
Purpose – An aggregate production function has been used in macroeconomic analysis for a long time, even though it seems that it is conceptually confusing and problematic. The purpose of this paper is to argue that the measurement problem related to the heterogenous capital input that exists in macr...
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Format: | Article |
Language: | English |
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Emerald Publishing
2019-04-01
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Series: | Journal of Industry-University Collaboration |
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Online Access: | https://www.emerald.com/insight/content/doi/10.1108/JIUC-03-2019-004/full/pdf?title=the-economic-market-outcomes-and-income-distribution-when-capital-is-not-homogeneous-limits-of-technology |
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author | Ahmet Özçam |
author_facet | Ahmet Özçam |
author_sort | Ahmet Özçam |
collection | DOAJ |
description | Purpose – An aggregate production function has been used in macroeconomic analysis for a long time, even though it seems that it is conceptually confusing and problematic. The purpose of this paper is to argue that the measurement problem related to the heterogenous capital input that exists in macroeconomics is also relevant to microeconomic market situations. Design/methodology/approach – The author constructed a microeconomic market model to address both the problems of the measurement of the physical capital and of substitutability between labor and capital in the short run using two types of technologies: labor neutral and labor reducing. The author proposed that labor and physical capital inputs are complementary in the short run and can become substitutes only in the long run when the technology advances. Findings – The author found that even if the technology improves at a fast rate over time, there are then diminishing returns of profits to technology and an upper limit to profits. Moreover, the author showed that under the labor-reducing technology, labor class earns more initially as technology improves, but their incomes start declining after some threshold level of passage of time. Originality/value – The author cautioned the applied researcher that the estimated labor and capital coefficients of generalized Cobb–Douglas and constant elasticity of substitution of types of production functions could not be interpreted as partial elasticities of labor and capital if in reality the data come from fixed-proportions types of processes. |
first_indexed | 2024-04-11T10:17:42Z |
format | Article |
id | doaj.art-c7d505f22b8d4939a713c34df4842814 |
institution | Directory Open Access Journal |
issn | 2631-357X |
language | English |
last_indexed | 2024-04-11T10:17:42Z |
publishDate | 2019-04-01 |
publisher | Emerald Publishing |
record_format | Article |
series | Journal of Industry-University Collaboration |
spelling | doaj.art-c7d505f22b8d4939a713c34df48428142022-12-22T04:29:54ZengEmerald PublishingJournal of Industry-University Collaboration2631-357X2019-04-0111385610.1108/JIUC-03-2019-004625517The economic market outcomes and income distribution when capital is not homogeneous: Limits of technologyAhmet Özçam0Department of Economics, Yeditepe University, Istanbul, TurkeyPurpose – An aggregate production function has been used in macroeconomic analysis for a long time, even though it seems that it is conceptually confusing and problematic. The purpose of this paper is to argue that the measurement problem related to the heterogenous capital input that exists in macroeconomics is also relevant to microeconomic market situations. Design/methodology/approach – The author constructed a microeconomic market model to address both the problems of the measurement of the physical capital and of substitutability between labor and capital in the short run using two types of technologies: labor neutral and labor reducing. The author proposed that labor and physical capital inputs are complementary in the short run and can become substitutes only in the long run when the technology advances. Findings – The author found that even if the technology improves at a fast rate over time, there are then diminishing returns of profits to technology and an upper limit to profits. Moreover, the author showed that under the labor-reducing technology, labor class earns more initially as technology improves, but their incomes start declining after some threshold level of passage of time. Originality/value – The author cautioned the applied researcher that the estimated labor and capital coefficients of generalized Cobb–Douglas and constant elasticity of substitution of types of production functions could not be interpreted as partial elasticities of labor and capital if in reality the data come from fixed-proportions types of processes.https://www.emerald.com/insight/content/doi/10.1108/JIUC-03-2019-004/full/pdf?title=the-economic-market-outcomes-and-income-distribution-when-capital-is-not-homogeneous-limits-of-technologyhigh technologydiminishing rate of profits to technologyfixed-proportions production technologyspeed as an economic resourcecobb–douglas production functions |
spellingShingle | Ahmet Özçam The economic market outcomes and income distribution when capital is not homogeneous: Limits of technology Journal of Industry-University Collaboration high technology diminishing rate of profits to technology fixed-proportions production technology speed as an economic resource cobb–douglas production functions |
title | The economic market outcomes and income distribution when capital is not homogeneous: Limits of technology |
title_full | The economic market outcomes and income distribution when capital is not homogeneous: Limits of technology |
title_fullStr | The economic market outcomes and income distribution when capital is not homogeneous: Limits of technology |
title_full_unstemmed | The economic market outcomes and income distribution when capital is not homogeneous: Limits of technology |
title_short | The economic market outcomes and income distribution when capital is not homogeneous: Limits of technology |
title_sort | economic market outcomes and income distribution when capital is not homogeneous limits of technology |
topic | high technology diminishing rate of profits to technology fixed-proportions production technology speed as an economic resource cobb–douglas production functions |
url | https://www.emerald.com/insight/content/doi/10.1108/JIUC-03-2019-004/full/pdf?title=the-economic-market-outcomes-and-income-distribution-when-capital-is-not-homogeneous-limits-of-technology |
work_keys_str_mv | AT ahmetozcam theeconomicmarketoutcomesandincomedistributionwhencapitalisnothomogeneouslimitsoftechnology AT ahmetozcam economicmarketoutcomesandincomedistributionwhencapitalisnothomogeneouslimitsoftechnology |