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Quantifying Non-monotonicity in Productivity-Input Relations

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  • Sasan Bakhtiari

    (School of Economics, The University of New South Wales)

Abstract

It is stylized that productivity and input size should relate positively and monotonically in the long run. In this paper, I present a theory that unifies the role of demand and production to investigate conditions that make this relation a bell-shape. Under the optimality assumption and when establishments operate in the same market, I quantify a simple algebraic condition on demand and production elasticities that governs the relation between productivity and input size. The case where establishments face different demands is also considered using a simple trade model and the implications are shown to be qualitatively the same. Supportive evidence is obtained from plant-level data on ready-mix concrete. Findings of this paper have important implications on how productivity dispersion and size distribution are formed within industries.

Suggested Citation

  • Sasan Bakhtiari, 2009. "Quantifying Non-monotonicity in Productivity-Input Relations," Discussion Papers 2009-11, School of Economics, The University of New South Wales.
    • Handle: RePEc:swe:wpaper:2009-11
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    File URL: http://research.economics.unsw.edu.au/RePEc/papers/2009-11.pdf
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    More about this item

    Keywords

    Productivity; Size Distribution; Demand Elasticity; Returns to Scale;
    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
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L61 - Industrial Organization - - Industry Studies: Manufacturing - - - Metals and Metal Products; Cement; Glass; Ceramics

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