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

Listed author(s):
  • Bertin, A.L.
  • Bresnahan, T.F.
  • Raff, D.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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Paper provided by Columbia - Graduate School of Business in its series Papers with number 93-10a.

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Length: 43 pages
Date of creation: 1993
Handle: RePEc:fth:colubu:93-10a
Contact details of provider: Postal:
U.S.A.; COLUMBIA UNIVERSITY, GRADUATE SCHOOL OF BUSINESS, PAINE WEBBER , New York, NY 10027 U.S.A

Phone: (212) 854-5553
Web page: http://www.gsb.columbia.edu/

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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. Bernanke, Ben S & Parkinson, Martin L, 1991. "Procyclical Labor Productivity and Competing Theories of the Business Cycle: Some Evidence from Interwar U.S. Manufacturing Industries," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 439-459, June.
  3. 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.
  4. 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.
  5. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-1297, November.
  6. 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.
  7. Hollis B. Chenery, 1949. "Engineering Production Functions," The Quarterly Journal of Economics, Oxford University Press, vol. 63(4), pages 507-531.
  8. Bernanke, Ben S, 1986. "Employment, Hours, and Earnings in the Depression: An Analysis of EightManufacturing Industries," American Economic Review, American Economic Association, vol. 76(1), pages 82-109, March.
  9. 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.
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