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A Note on the Role of Energy in Production

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  • Keen, Steve
  • Ayres, Robert U.
  • Standish, Russell

Abstract

Energy plays no role in the standard Cobb-Douglas Production Function (CDPF), and a trivial role in a three-factor CDPF where it is treated as a third input, independent of labour and capital. Starting from an epistemological perspective, we treat energy as an input to both labour and capital, without which production is impossible. We then derive an energy-based CPDF (EBCDPF) in which energy plays a critical role. We argue for the redefinition and measurement of real GDP in terms of exergy. We conclude that the “Solow Residual” measures the contribution of exergy to growth, and that the exponents in the EBCDPF should be based on cross-country comparative data as suggested by Mankiw (1995) rather than the “cost-share theorem”.

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  • Keen, Steve & Ayres, Robert U. & Standish, Russell, 2019. "A Note on the Role of Energy in Production," Ecological Economics, Elsevier, vol. 157(C), pages 40-46.
  • Handle: RePEc:eee:ecolec:v:157:y:2019:i:c:p:40-46
    DOI: 10.1016/j.ecolecon.2018.11.002
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    7. Hagens, N.J., 2020. "Economics for the future – Beyond the superorganism," Ecological Economics, Elsevier, vol. 169(C).
    8. Herve Bercegol & Henri Benisty, 2020. "An energy-based macroeconomic model validated by global historical series since 1820," Papers 2008.10967, arXiv.org, revised Sep 2020.
    9. Solji Nam & Jungwoo Shin & Jaena Ryu & Hanee Ryu, 2021. "Climate impacts on geographical changes in the energy industry," Business Strategy and the Environment, Wiley Blackwell, vol. 30(1), pages 478-488, January.
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