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Production Theory: Accounting for Firm Heterogeneity and Technical Change

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  • Giovanni Dosi
  • Marco Grazzi
  • Luigi Marengo
  • Simona Settepanella

Abstract

The paper presents a new framework to assess firm level heterogeneity and to study the rate and direction of technical change. Building on the analysis of revealed short-run production functions by Hildenbrand (1981), we propose the (normalized) volume of the zonotope composed by vectors-firms in a narrowly defined industry as an indicator of inter-firm heterogeneity. Moreover, the angles that the main diagonal of the zonotope form with the axes provides a measure of the rates and directions of technical change over time. The proposed framework can easily account for n-inputs and m-outputs and, crucially, the measures of heterogeneity and technical change do not require many of the standard assumptions from production theory.
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  • Giovanni Dosi & Marco Grazzi & Luigi Marengo & Simona Settepanella, 2016. "Production Theory: Accounting for Firm Heterogeneity and Technical Change," Journal of Industrial Economics, Wiley Blackwell, vol. 64(4), pages 875-907, December.
    • Handle: RePEc:bla:jindec:v:64:y:2016:i:4:p:875-907
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    File URL: http://hdl.handle.net/10.1111/joie.12128
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    6. ARATA Yoshiyuki & ONOZAKI Tamotsu, 2017. "A Compositional Data Analysis of Market Share Dynamics," Discussion papers 17076, Research Institute of Economy, Trade and Industry (RIETI).
    7. Nchare, Karim & Vitouley, Marcel & Kaila, Heidi & Liu, Yanyan, 2022. "A Geometric Analysis of Technological Heterogeneity in the Agricultural Sector: Evidence from Maize in Tanzania," PRCI Research Papers 330119, Michigan State University, Department of Agricultural, Food and Resource Economics, Food Security Group.
    8. Kristiaan Kerstens & Jafar Sadeghi & Ignace Woestyne & John Walden, 2024. "Short-run Johansen frontier-based industry models: methodological refinements and empirical illustration on fisheries," Journal of Productivity Analysis, Springer, vol. 61(1), pages 47-62, February.
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    10. Jack Birner & Marco Mazzoli & Eleonora Priori & Pietro Terna, 2024. "Breaking open the black box of the production function: an agent-based model accounting for time in production processes," Papers 2405.07103, arXiv.org.
    11. M. Grazzi & C. Piccardo & C. Vergari, 2017. "Building a firm level dataset for the analysis of industrial dynamics and demography," Working Papers wp2003, Dipartimento Scienze Economiche, Universita' di Bologna.
    12. Dosi, G. & Piva, M. & Virgillito, M.E. & Vivarelli, M., 2021. "Embodied and disembodied technological change: The sectoral patterns of job-creation and job-destruction," Research Policy, Elsevier, vol. 50(4).
    13. S. Settepanella & A. Terni & M. Franciosi & L. Li, 2022. "The robustness of the generalized Gini index," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 45(2), pages 521-539, December.
    14. Atushi Ishikawa & Shouji Fujimoto & Takayuki Mizuno, 2021. "Why does production function take the Cobb–Douglas form?," Evolutionary and Institutional Economics Review, Springer, vol. 18(1), pages 79-102, April.
    15. Yuji Aruka, 2018. "Hodgson’s bibliometric report and the reconstruction plan of economics," Evolutionary and Institutional Economics Review, Springer, vol. 15(1), pages 189-202, June.
    16. Giovanni Dosi & Marcelo C. Pereira & Maria Enrica Virgillito, 2017. "The footprint of evolutionary processes of learning and selection upon the statistical properties of industrial dynamics," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 26(2), pages 187-210.
    17. Yuji Aruka, 2017. "Some new perspectives on the inter-country analysis of the world production system," Evolutionary and Institutional Economics Review, Springer, vol. 14(2), pages 467-498, December.
    18. Giovanni Dosi & Marco Grazzi & Le Li & Luigi Marengo & Simona Settepanella, 2021. "Productivity Decomposition in Heterogeneous Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 69(3), pages 615-652, September.
    19. Pierluigi Toma, 2020. "Size and productivity: a conditional approach for Italian pharmaceutical sector," Journal of Productivity Analysis, Springer, vol. 54(1), pages 1-12, August.
    20. Giovanni Dosi & Marco Grazzi & Le Li & Luigi Marengo & Simona Settepanella, 2019. "Aggregate Productivity Growth in the Presence of (Persistently) Heterogeneous Firms," LEM Papers Series 2019/26, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    21. Michael Peneder & Catherine Prettner, 2021. "Entwicklung der Produktivität österreichischer Unternehmen von 2008 bis 2018. Auswertung von Mikrodaten für Österreich im Rahmen von Multiprod 2.0," WIFO Studies, WIFO, number 67450.
    22. Paternesi Meloni, Walter & Romaniello, Davide & Stirati, Antonella, 2022. "Inflation and the NAIRU: assessing the role of long-term unemployment as a cause of hysteresis," Economic Modelling, Elsevier, vol. 113(C).

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    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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