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On the Restrictiveness of Separability: The Significance of Energy in German Manufacturing

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  • Manuel Frondel

    ()

  • Christoph M. Schmidt

    ()

Abstract

Any researcher would certainly agree with Hamermesh’s (1993:34) intuition about separability that the ease of substitution between any two production factors should be unaffected by a third factor that is separable from the others. This paper emphasizes that such a notion of separability needs to be more restrictive than the classical separability concept is.We thus coin the notion of strict separability that implies the classical concept. By applying both separability concepts in a translog approach to German manufacturing data (1978–1990), we focus on the empirical question of whether the omission of energy affects the conclusions about the ease of substitution among nonenergy factors. We find ample empirical evidence to doubt the assumption that energy is separable from all other production factors even in the relatively mild form of classical separability. At least under separability aspects, therefore, energy appears to be an indispensable production factor

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Bibliographic Info

Paper provided by Rheinisch-Westfälisches Institut für Wirtschaftsforschung in its series RWI Discussion Papers with number 0038.

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Length: 25 pages
Date of creation: Mar 2006
Date of revision:
Handle: RePEc:rwi:dpaper:0038

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Keywords: Substitution; Translog Cost Functions;

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References

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  1. Schmidt, Christoph M. & Frondel, Manuel, 2002. "The empirical assessment of technology differences: comparing the comparable," ZEW Discussion Papers 02-63, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Massimo Filippini, 1999. "Economies Of Scale In The Swiss Nursing Home Industry," SOI - Working Papers 9901, Socioeconomic Institute - University of Zurich.
  3. Koebel, Bertrand M. & Falk, Martin, 1999. "Curvature conditions and substitution pattern among capital, energy, materials and heterogeneous labour," ZEW Discussion Papers 99-06, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  4. Frondel, Manuel & Schmidt, Christoph M., 2001. "Rejecting capital-skill complementarity at all costs," ZEW Discussion Papers 01-27, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  5. A. Yatchew, 2000. "Scale economies in electricity distribution: a semiparametric analysis," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(2), pages 187-210.
  6. Samuelson, Paul A, 1974. "Complementarity-An Essay on the 40th Anniversary of the Hicks-Allen Revolution in Demand Theory," Journal of Economic Literature, American Economic Association, vol. 12(4), pages 1255-89, December.
  7. Ryan, David L. & Wales, Terence J., 2000. "Imposing local concavity in the translog and generalized Leontief cost functions," Economics Letters, Elsevier, vol. 67(3), pages 253-260, June.
  8. Dale W. Jorgenson & Lawrence J. Lau, 1975. "The Structure of Consumer Preferences," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 4, number 1, pages 49-101 National Bureau of Economic Research, Inc.
  9. Denny, Michael & Fuss, Melvyn A, 1977. "The Use of Approximation Analysis to Test for Separability and the Existence of Consistent Aggregates," American Economic Review, American Economic Association, vol. 67(3), pages 404-18, June.
  10. Pindyck, Robert S, 1979. "Interfuel Substitution and the Industrial Demand for Energy: An International Comparison," The Review of Economics and Statistics, MIT Press, vol. 61(2), pages 169-79, May.
  11. Ogaki, Masao, 1990. "The Indirect and Direct Substition Effects," American Economic Review, American Economic Association, vol. 80(5), pages 1271-75, December.
  12. Manuel Frondel & Christoph M. Schmidt, 2002. "The Capital-Energy Controversy: An Artifact of Cost Shares?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 53-79.
  13. Weber, Christian E., 2002. "Household production and complementarity: an example based on Samuelson's coffee-cream-tea paradox," Economics Letters, Elsevier, vol. 75(2), pages 277-282, April.
  14. Frondel, Manuel, 2004. "Empirical assessment of energy-price policies: the case for cross-price elasticities," Energy Policy, Elsevier, vol. 32(8), pages 989-1000, June.
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