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Inada Conditions and the Law of Diminishing Returns

  • Rolf Fare

    (Department of Economics, Oregon State University, U.S.A.)

  • Daniel Primont

    (Department of Economics, Southern Illinois University, U.S.A.)

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    Inada (1963) provided properties of the production function that are useful in the study of economic growth. Shephard (1970a) provided an axiomatic approach to the study of production theory. He applied these axioms to give a formal statement of the law of diminishing returns [(Shephard, 1970b)]. In this paper we demonstrate that the Inada conditions and the law of diminishing returns, as articulated by Shephard, are fundamentally inconsistent. Thus one is forced to make a choice between the two models when studying productivity and growth.

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    Article provided by College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan in its journal International Journal of Business and Economics.

    Volume (Year): 1 (2002)
    Issue (Month): 1 (April)
    Pages: 1-8

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    Handle: RePEc:ijb:journl:v:1:y:2002:i:1:p:1-8
    Contact details of provider: Postal: 100 Wenhwa Road, Seatwen, Taichung
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    1. Robert J. Barro, 2012. "Inflation and Economic Growth," CEMA Working Papers 568, China Economics and Management Academy, Central University of Finance and Economics.
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