The Sledge on the Slope or: Energy in the Economy, and the Paradox of Theory and Policy
AbstractEnergy conversion in the production of goods and services, and the resulting emissions associated with entropy production, have not yet been taken into account by the mainstream theory of economic growth. Novel econometric analyses, however, have revealed energy as a production factor whose output elasticity, which measures its productive power, is much higher than its share in total factor cost. This, although being at variance with the notion of orthodox economics, is supported by the standard maximization of profit or time-integrated utility, if one takes technological constraints on capital, labor, and energy into account. The present paper offers an explanation of these findings in the picture of a sledge, which represents the economy, on the slope of a niveous mountain, which represents cost. Historical economic trajectories indicate that the representative entrepreneur at the controls of the sledge steers his vehicle with due regard of the barriers from the technological constraints, observing “soft” constraints, like the legal framework of the market, in addition. We believe that this perspective contributes to resolving the paradox that energy hardly matters in mainstream growth theory, whereas it is an issue of growing importance in international policy.
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Bibliographic InfoPaper provided by Energiewirtschaftliches Institut an der Universitaet zu Koeln in its series EWI Working Papers with number 2013-3.
Length: 14 pages
Date of creation: 18 Feb 2013
Date of revision:
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More information through EDIRC
energy; economic growth; oil price; profit maximization; technological constraints; output elasticities;
Find related papers by JEL classification:
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
- Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-09 (All new papers)
- NEP-ENE-2013-03-09 (Energy Economics)
- NEP-HIS-2013-03-09 (Business, Economic & Financial History)
- NEP-HME-2013-03-09 (Heterodox Microeconomics)
- NEP-HPE-2013-03-09 (History & Philosophy of Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lindenberger, Dietmar & Kuemmel, Rainer, 2011. "Energy and the State of Nations," EWI Working Papers 2011-11, Energiewirtschaftliches Institut an der Universitaet zu Koeln.
- Ayres, Robert U. & Warr, Benjamin, 2005. "Accounting for growth: the role of physical work," Structural Change and Economic Dynamics, Elsevier, vol. 16(2), pages 181-209, June.
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