An Assessment of CES and Cobb-Douglas Production Functions
نویسندگان
چکیده
This paper surveys the empirical and theoretical literature on macroeconomic production functions and assesses whether the constant elasticity of substitution (CES) or the CobbDouglas specification is more appropriate for use in the CBO’s macroeconomic forecasts. The Cobb-Douglas’s major strengths are its ease of use and its seemingly good empirical fit across many data sets. Unfortunately, the Cobb-Douglas still fits the data well in cases where some of its fundamental assumptions are violated. This suggests that many empirical tests of the Cobb-Douglas are picking up a statistical artifact rather than an underlying production function. The CES has less restrictive assumptions about the interaction of capital and labor in production. However, econometric estimates of its elasticity parameter have produced inconsistent results. For the purpose of forecasting under current policies, there may not be a strong reason to prefer one form over the other; but for analysis of policies affecting factor returns, such as taxes on capital and labor income, the Cobb-Douglas specification may be too restrictive. It takes something more than the usual “willing suspension of disbelief” to talk seriously of the aggregate production function. (Robert Solow, 1957, p. 1)
منابع مشابه
Comparing Estimations of Return to Scale in Mechanized and Semi-Mechanized Broiler Chick Farms Located in Gorgan City
Quantitative analysis of production through evaluation of inputs consumption quantity is of main principles in agricultural policies, which is followed by increasing in production through optimal use of resources. This study has been conducted to estimate different types of production functions in mechanized farms of broiler chicks located in Gorgan city. Cross-section survey data were gathered...
متن کاملParameter Heterogeneity and Nonlinearities in the Aggregate Production Function: Investigating the Solow Growth Model with CES Technology
In this paper we examine whether nonlinearities in the aggregate production function can explain parameter heterogeneity in the Solow (1956) growth regressions. Nonlinearities in the production technology are introduced by replacing the linear Cobb-Douglas specification with the more general CES specification. We justify our choice of production function by showing that in the context of cross-...
متن کاملA New Class of Production Functions and an Argument Against Purely Labor-Augmenting Technical Change
This paper follows Jones (2005) in his approach to deriving the global production function from microfoundations. His framework is generalized by allowing for dependence between the Pareto distributions of laborand capital-augmenting developments. Using the Clayton copula family to capture this dependence, we derive a “Clayton-Pareto” class of production functions that nests both the Cobb-Dougl...
متن کاملA New Class of Production Functions and an Argument against Purely
This paper follows Jones (2005) in his approach to deriving the global production function from microfoundations. His framework is generalized by allowing for dependence between the Pareto distributions of laborand capital-augmenting developments. Using the Clayton copula family to capture this dependence, we derive a “Clayton-Pareto” class of production functions that nests both the Cobb-Dougl...
متن کاملA Cross-Country Empirical Investigation of the Aggregate Production Function Specification
Many growth models assume that aggregate output is generated by a Cobb-Douglas production function. In this article we question the empirical relevance of this specification. We use a panel of 82 countries over a 28-year period to estimate a general constant-elasticity-of-substitution (CES) production function specification. We find that for the entire sample of countries we can reject the Cobb...
متن کامل