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Factor Price Variation and the Hicksian Hypothesis: A Microeconomic Model

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  • Sato, Ryuzo
  • Ramachandran, Rama

Abstract

This paper uses a straightforward extension of the model of a profit-maximizing firm to consider biased technical progress. The firm faces increases in produ ction costs because of differential growth in input prices. A researc h program can increase the efficiencies of these factors. The firm us es optimal control to balance the cost of research with the benefits. The authors then examine sufficient conditions for saddle-point conv ergence to a steady state where the growth in efficiencies matches th e growth in input prices. This leads to some surprising conclusions. Copyright 1987 by Royal Economic Society.

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  • Sato, Ryuzo & Ramachandran, Rama, 1987. "Factor Price Variation and the Hicksian Hypothesis: A Microeconomic Model," Oxford Economic Papers, Oxford University Press, vol. 39(2), pages 343-356, June.
    • Handle: RePEc:oup:oxecpp:v:39:y:1987:i:2:p:343-56
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    Cited by:

    1. Ryuzo Sato & Tamaki Morita, 2009. "Quantity Or Quality: The Impact Of Labour Saving Innovation On Us And Japanese Growth Rates, 1960–2004," The Japanese Economic Review, Japanese Economic Association, vol. 60(4), pages 407-434, December.
    2. Ryuzo Sato & Tamaki Morita, 2009. "Macro Dynamics and Labor-Saving Innovation: US vs. Japan," Springer Books, in: Takashi Kamihigashi & Laixun Zhao (ed.), International Trade and Economic Dynamics, pages 477-495, Springer.
    3. Kim, Tae-Kyun, 1989. "The factor bias of technical change and technology adoption under uncertainty," ISU General Staff Papers 1989010108000010138, Iowa State University, Department of Economics.

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