Biased Technical Change and the Aggregate Production Function
Colgate Univ. Econ. Discussion Paper 96-08
Posted: 20 Jan 1997
Date Written: September 1996
This paper develops a model of biased technical change in the Ricardo-Marx tradition in which capital-labor substitution occurs as a partially irreversible historical process. The world described by the model would appear to an unsuspecting economist to be well-described by a neoclassical model with a Cobb-Douglas production function. However, its trajectory in wage-profit space will lie along a displaced and distorted image of the factor price frontier generated by the neoclassical model. This can explain why the output elasticity of capital exceeds the profit share in most empirical studies.
JEL Classification: O47, E11
Suggested Citation: Suggested Citation