2013/22 | LEM Working Paper Series | ||||||||||||||||
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Production theory: accounting for firm heterogeneity and technical change |
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Giovanni Dosi, Marco Grazzi, Luigi Marengo, Simona Settepanella |
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Keywords | |||||||||||||||||
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Production theory, Heterogeneous firms, Activity Analysis, Technical change, Zonotopes, Production functions
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JEL Classifications | |||||||||||||||||
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D24; D61; C67; C81; O30
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Abstract | |||||||||||||||||
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The paper presents a new framework to assess firm level heterogeneity
and to study the rate and direction of technical change. Building on
the analysis of revealed short-run production functions by Hildenbrand
(1981), we propose the (normalized) volume of the zonotope composed by
vectors-firms in a narrowly defined industry as an indicator of
inter-firm heterogeneity. Moreover, the angles that the main diagonal
of the zonotope form with the axes provides a measure of the rates and
directions of technical change over time. The proposed framework can
easily account for n-inputs and m-outputs and, crucially, the measures
of heterogeneity and technical change do not require many of the
standard assumptions from production theory.
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