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The Empirical Assessment of Technology Differences: Comparing the Comparable

  • Manuel Frondel

    (RWI Essen)

  • Christoph M. Schmidt

    (RWI Essen, Ruhr University Bochum, and CEPR London)

Since the first statement of Hicks's induced innovation hypothesis in 1932, a large number of theoretical and empirical studies have analyzed the issue of price-induced technological change-many of them on the basis of substitution elasticities. This note compares technologies across space and time on the basis of factual and counterfactual substitution elasticities and argues that differences in estimated substitution elasticities should be decomposed into two counterfactual components. The first component is designed to indicate how the ease of substitution is altered by varied economic circumstances; the second addresses the question of how technologies would compare under genuinely comparable situations. This argument is illustrated by the example of energy-price elasticities of capital before and after the oil crisis of the early 1970s. © 2006 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 88 (2006)
Issue (Month): 1 (February)
Pages: 186-192

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Handle: RePEc:tpr:restat:v:88:y:2006:i:1:p:186-192
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  1. Oaxaca, Ronald L. & Ransom, Michael R., 1994. "On discrimination and the decomposition of wage differentials," Journal of Econometrics, Elsevier, vol. 61(1), pages 5-21, March.
  2. Ronald Oaxaca, 1971. "Male-Female Wage Differentials in Urban Labor Markets," Working Papers 396, Princeton University, Department of Economics, Industrial Relations Section..
  3. 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.
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  1. Technology Assessment

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