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Localized Competition and the Aggregation of Plant-Level Increasing Returns: Blast Furnaces, 1929-1935

Listed author(s):
  • Bertin, Amy L
  • Bresnahan, Timothy F
  • Raff, Daniel M G

A recent empirical literature has shaken economists' confidence in the value of aggregate (industry-level) data to illuminate production relationships. But the statistical finding 'you can't aggregate,' however well documented, is not an economic explanation. Plant-level relationships do aggregate in Depression-era blast furnace operations despite the presence of very substantial interplant heterogeneity, the most common economic cause of nonaggregability. The economic explanation of this lies in poor short-run substitutability of one plant's output for another's. Substitutability determines the importance of composition effects in understanding aggregate time series, constrains the potential cleansing effects of recessions, and therefore influences industry evolution quite broadly. Copyright 1996 by University of Chicago Press.

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File URL: http://dx.doi.org/10.1086/262024
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Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 104 (1996)
Issue (Month): 2 (April)
Pages: 241-266

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Handle: RePEc:ucp:jpolec:v:104:y:1996:i:2:p:241-66
Contact details of provider: Web page: http://www.journals.uchicago.edu/JPE/

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  1. Fay, Jon A & Medoff, James L, 1985. "Labor and Output over the Business Cycle: Some Direct Evidence," American Economic Review, American Economic Association, vol. 75(4), pages 638-655, September.
  2. Hamermesh, Daniel S, 1989. "Labor Demand and the Structure of Adjustment Costs," American Economic Review, American Economic Association, vol. 79(4), pages 674-689, September.
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  7. Carlton, Dennis W, 1991. "The Theory of Allocation and Its Implications for Marketing and Industrial Structure: Why Rationing Is Efficient," Journal of Law and Economics, University of Chicago Press, vol. 34(2), pages 231-262, October.
  8. Dennis W. Carlton, 1991. "The Theory of Allocation and Its Implications for Marketing and Industrial Structure," NBER Working Papers 3786, National Bureau of Economic Research, Inc.
  9. Caballero, Ricardo J & Hammour, Mohamad L, 1994. "The Cleansing Effect of Recessions," American Economic Review, American Economic Association, vol. 84(5), pages 1350-1368, December.
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