Short cuts to dynamic factor demand modelling

Abstract

By means of so-called virtual or shadow prices, short-run factor demands, short-run marginal costs, etc. can be derived from any long-run cost function. The traditional approach (short-run/restricted/conditional/variable cost functions) is criticized, and it is also shown that technological change, scale e!ects, etc. can be added to any cost function by means of disembodied factor-augmenting e$ciency indexes, easing the interpretations of the e!ects, but without loss of #exibility. It is shown that the trend-and scaleparameters of the (long-run) translog cost function can be directly translated into trendand scale-parameters of such e$ciency indexes. The techniques are illustrated on the well-known Berndt}Wood data set, using a (Diewert) long-run generalized Leontief (GL) cost function, and assuming that capital and labour are quasi-"xed.2000 Published by Elsevier Science S.A. All rights reserved.JEL classixcation: D21; D24; D45; E23

Productivity trends in U.S. manufacturing: Evidence from the NQ and AIM cost functions

“…In doing so, we have extended the Barnett et al (1991) AIM model, by incorporating (for the first time in the literature) technical change through the factor-augmenting efficiency index approach, proposed by Thomsen (2000).…”

“…In particular, we assume that the effects of technical change (t) on the production level y are purely factoraugmenting; that is, affecting each factor through a factor specific efficiency index, e i ¼ e i ðt; yÞ-factor augmenting technical change was pioneered by Kohli (1981Kohli ( , 1982Kohli ( , 1991Kohli ( , 1993. Thomsen (2000) shows generally that in order to obtain a total cost function with technical change and returns to scale, Cðp; y; tÞ, one can first figure out the stripped-down cost function denoted by C Ã ðp; yÞ, and then divide p in C Ã ðp; yÞ by a factor specific efficiency index. Thomsen (2000) further shows that the efficiency index is capable of rendering any stripped-down cost function flexible in y and t. Under the assumption of constant returns to scale we specify the efficiency index as 2…”

“…Thomsen (2000) shows generally that in order to obtain a total cost function with technical change and returns to scale, Cðp; y; tÞ, one can first figure out the stripped-down cost function denoted by C Ã ðp; yÞ, and then divide p in C Ã ðp; yÞ by a factor specific efficiency index. Thomsen (2000) further shows that the efficiency index is capable of rendering any stripped-down cost function flexible in y and t. Under the assumption of constant returns to scale we specify the efficiency index as 2…”

Flexible versus designated technologies and interfuel substitution

“…9 Virtual prices are used in the same way by Thomsen (2000) to determine the short run restricted cost function in a quasi-…xed capital model.…”

Skill-biased technical change in US manufacturing: a general index approach

“…The production literature relating to NNTC refers to a wider range of flexible forms. For example, Binswanger (1974), Kumbhakar (2002) and Thomsen (2000) implement "factor-augmenting" technical change using second order, third order and alternative functional forms. Consider the natural logarithm of total costs (ln TC) as a function of all input prices (ln P i ), output (ln Y), and a time trend (t).…”