Working Paper: NBER ID: w10457
Authors: Charles I. Jones
Abstract: This paper views the standard production function in macroeconomics as a reduced form and derives its properties from microfoundations. The shape of this production function is governed by the distribution of ideas. If that distribution is Pareto, then two results obtain: the global production function is Cobb-Douglas, and technical change in the long run is labor-augmenting. Kortum (1997) showed that Pareto distributions are necessary if search-based idea models are to exhibit steady-state growth. Here we show that this same assumption delivers the additional results about the shape of the production function and the direction of technical change.
Keywords: No keywords provided
JEL Codes: O40; E10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Pareto distribution of ideas (D30) | Cobb-Douglas production function (E23) |
| Cobb-Douglas production function (E23) | labor-augmenting technical change (O49) |
| Pareto distribution of ideas (D30) | labor-augmenting technical change (O49) |