IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Reassessing aggregate returns to scale with standard theory and measurement

  • Harold L. Cole
  • Lee E. Ohanian

Constant returns to scale is a central construct of neoclassical theory. Previous studies argued that one must adopt a specification of the production function with substantial unobserved service variation to reconcile constant returns with the data. Some economists have argued that this finding has not resolved the size of returns to scale, since factor service variation is unobserved, and there is no generally accepted theory to guide specification of this alternative framework. In this paper we show that the stochastic version of the neoclassical growth model delivers an orthogonality condition which can be used to estimate returns to scale. Rather than the standard finding of increasing returns, we show that standard theory and conventional measures of output and inputs yield estimates of constant returns to scale at the aggregate level. Our estimates also suggest that factor service variation is not an important determinant of output fluctuations.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.minneapolisfed.org/research/common/pub_detail.cfm?pb_autonum_id=928
Download Restriction: no

File URL: http://www.minneapolisfed.org/research/WP/WP566.pdf
Download Restriction: no

Paper provided by Federal Reserve Bank of Minneapolis in its series Working Papers with number 566.

as
in new window

Length:
Date of creation: 1996
Date of revision:
Handle: RePEc:fip:fedmwp:566
Contact details of provider: Postal: 90 Hennepin Avenue, P.O. Box 291, Minneapolis, MN 55480-0291
Phone: (612) 204-5000
Web page: http://minneapolisfed.org/

More information through EDIRC

Order Information: Web: http://www.minneapolisfed.org/pubs/ Email:


No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:fip:fedmwp:566. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Janelle Ruswick)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.