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Why is the Cobb-Douglas production function so popular?

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  • Bert M. Balk

    (Erasmus University Rotterdam)

Abstract

It is well known that, in continuous time, the Cobb-Douglas function can be derived from the underlying, data governing, accounting identity under some reasonable assumptions (factor shares are constant, and the weighted growth of the labour input price and the capital input price is constant). In this article these results are generalized in three ways: (1) the accounting identity contains a (pure) profit term; (2) continuous time is replaced by discrete time periods; (3) additional assumptions appear to be superfluous. The article also discusses extensions: from two to multiple inputs, from value added to gross output, and from a single production unit to an ensemble of those units.

Suggested Citation

  • Bert M. Balk, 2024. "Why is the Cobb-Douglas production function so popular?," Evolutionary and Institutional Economics Review, Springer, vol. 21(1), pages 1-20, April.
    • Handle: RePEc:spr:eaiere:v:21:y:2024:i:1:d:10.1007_s40844-024-00279-x
    DOI: 10.1007/s40844-024-00279-x
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    References listed on IDEAS

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    1. Sebastian Gechert & Tomas Havranek & Zuzana Irsova & Dominika Kolcunova, 2022. "Measuring Capital-Labor Substitution: The Importance of Method Choices and Publication Bias," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 45, pages 55-82, July.
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    11. E. H. Phelps Brown, 1957. "The Meaning of the Fitted Cobb-Douglas Function," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 71(4), pages 546-560.
    12. Sebastian Gechert & Tomas Havranek & Zuzana Irsova & Dominika Kolcunova, 2022. "Measuring Capital-Labor Substitution: The Importance of Method Choices and Publication Bias," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 45, pages 55-82, July.
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    More about this item

    Keywords

    Productivity; Production function; Cobb-Douglas; Index number theory;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production

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