Working Paper: NBER ID: w25293
Authors: David Baqaee; Emmanuel Farhi
Abstract: Aggregate production functions are reduced-form relationships that emerge endogenously from input-output interactions between heterogeneous producers and factors in general equilibrium. We provide a general methodology for analyzing such aggregate production functions by deriving their first- and second-order properties. Our aggregation formulas provide non-parameteric characterizations of the macro elasticities of substitution between factors and of the macro bias of technical change in terms of micro sufficient statistics. They allow us to generalize existing aggregation theorems and to derive new ones. We relate our results to the famous Cambridge-Cambridge controversy.
Keywords: aggregate production functions; microeconomic foundations; general equilibrium; elasticities of substitution; technical change
JEL Codes: E0; E1; E25
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| microeconomic behaviors of heterogeneous producers (D21) | aggregate production functions (E23) |
| microeconomic elasticities of substitution (D11) | elasticity of substitution between factors (F16) |
| microeconomic parameters (P42) | bias of technical change (O33) |
| changes in productivity at the producer level (E23) | overall bias in the aggregate production function (E23) |