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Testing for production with complementarities

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  • Pawel Dziewulski
  • John Quah

Abstract

Suppose we observe a finite number of input decisions made by a firm, as well as the prices at which those inputs were acquired. What conditions on the set of observations are necessary and sufficient for it to be consistent with a firm choosing inputs to maximize profit, subject to a production function exhibiting production complementarities? In this paper, we develop an axiomatic characterisation of this hypothesis and also develop a test that can be easily applied to finite data sets.

Suggested Citation

  • Pawel Dziewulski & John Quah, 2014. "Testing for production with complementarities," Economics Series Working Papers 722, University of Oxford, Department of Economics.
  • Handle: RePEc:oxf:wpaper:722
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    File URL: https://ora.ox.ac.uk/objects/uuid:22aee82a-769b-4f43-b366-bf8ce4d67f50
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    References listed on IDEAS

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    1. Margaret Meyer & Bruno Strulovici, 2013. "The Supermodular Stochastic Ordering," Discussion Papers 1563, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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    3. Milgrom, Paul & Shannon, Chris, 1994. "Monotone Comparative Statics," Econometrica, Econometric Society, vol. 62(1), pages 157-180, January.
    4. Border, Kim C., 1992. "Revealed preference, stochastic dominance, and the expected utility hypothesis," Journal of Economic Theory, Elsevier, vol. 56(1), pages 20-42, February.
    5. Donald Brown & Caterina Calsamiglia, 2007. "The Nonparametric Approach to Applied Welfare Analysis," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 31(1), pages 183-188, April.
    6. Dziewulski, Pawel, 2014. "Revealed time-preference," MPRA Paper 56596, University Library of Munich, Germany.
    7. Christopher Chambers & Federico Echenique, 2009. "Profit maximization and supermodular technology," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 40(2), pages 173-183, August.
    8. Milgrom, Paul & Roberts, John, 1990. "The Economics of Modern Manufacturing: Technology, Strategy, and Organization," American Economic Review, American Economic Association, vol. 80(3), pages 511-528, June.
    9. Rochet, Jean-Charles, 1987. "A necessary and sufficient condition for rationalizability in a quasi-linear context," Journal of Mathematical Economics, Elsevier, vol. 16(2), pages 191-200, April.
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    Cited by:

    1. Nocke, Volker & Schutz, Nicolas, 2017. "Quasi-linear integrability," Journal of Economic Theory, Elsevier, vol. 169(C), pages 603-628.

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    More about this item

    Keywords

    profit maximisation; production complementarities; supermodular production; modern manufacturing; cyclical monotonicity; quasilinear preferences;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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