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A microfoundation for normalized CES production functions with factor-augmenting technical change

  • Growiec, Jakub

Based on a tractable “endogeneous technology choice” framework, we provide a microfoundation for aggregate normalized constant elasticity of substitution (CES) production functions with non-neutral, factor-augmenting technical change. In this framework, firms are allowed to choose unit productivities of capital and labor optimally from a technology menu constructed under the assumption that unit factor productivities (UFPs) are independently Weibull-distributed. The Weibull distribution itself is also microfounded here: based on extreme value theory, it is found to be an accurate and robust approximation of the true UFP distribution if technologies consist of a large number of complementary components.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 37 (2013)
Issue (Month): 11 ()
Pages: 2336-2350

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Handle: RePEc:eee:dyncon:v:37:y:2013:i:11:p:2336-2350
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