Economics Dictionary of ArgumentsHome
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| Cobb-Douglas production: The Cobb-Douglas production function is a mathematical model in economics that represents output as a function of labor and capital
Y= AKα Lβ
where Y is output, A is total factor productivity, K is capital, L is labor, and α,β are output elasticities, indicating input contributions. See also Production, Production function, CES Production function, Production theory, >Productivity, Elasticity._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Henry Phelps Brown on Cobb-Douglas Production Function - Dictionary of Arguments
Harcourt I 87 Cobb-Douglas Production funtion/Phelps Brown/Harcourt: There is no reported instance, as there is of one man's confrontation with the binomial theorem, of anyone being reduced to tears by the sight of Cobb-Douglas 'because it is so beautiful' - but clearly many members of the trade have had lumps in their throats, even as seasoned a campaigner as Phelps Brown: see Phelps Brown [1968](1), Phelps Brown with Browne [1968](2), pp. 337-8. Technical progress: After a masterly survey of alternative theories of distribution and of the distribution of the product (of manufacturing industry) between pay and profits in five advanced industrial economies, he selects as the best explanation of the stylized facts thrown up by his researches - a constant rate of profits of 10 per cent per annum, a share of pay in product of 75 per cent, and a steady capital-output ratio of two and a half-a Cobb-Douglas constant-returns-to-scale aggregate production function allied with neutral technical progress. He couples them with a new twist - a perfectly elastic supply curve of savings at a rate of profits of 10 per cent. Marginal product of capital: The exponents of the Cobb-Douglas are such as to give a marginal product of capital (equals the rate of profits) of 10 per cent and also the values of the other observed 'great ratios'. The wage of labour (equals its marginal product) grows at the same rate as average productivity. The rate of profits is determined, along with the capitallabour ratio, by the intersection of the demand curve for investment (with a little juggling and licence, the marginal product of capital curve) with the perfectly elastic supply curve of savings. The rate of profits therefore remains constant, thus suggesting that the fruits of progress go entirely to labour. Harcourt: This, however, is an anti-wage-earner way of putting it; if the profit-receivers breed less fast than the wage-earners, because they have either more sense or less vitality, their income per head will rise faster than that of the lower classes. Harcourt I 88 Elasticity: The perfectly elastic supply curve of savings reflects Phelps Brown's vision that liberal capitalism provides the appropriate environment in which enterprise may flourish and produce this response. His model - if correct - provides the justification for Johansen's factual assumptions(3). It is, however, a little surprising that Phelps Brown should have such faith in the present hypothesis, especially when we consider the formidable arguments of his earlier paper on the CobbDouglas, see Phelps Brown [1957](4), arguments which subsequently have been reinforced by the recent work of F. M. Fisher, see F. M. Fisher [1969(5), 1970(6)] (…). 1. Phelps Brown, E. H. [1968] Pay and Profits (Manchester: Manchester University Press). 2. Phelps Brown, E. H. with Browne, Margaret H. [1968] A Century of Pay (London: Macmillan). 3. Johansen, L. [1959] 'Substitution versus Fixed Production Coefficients in the Theory of Economic Growth: A Synthesis', Econometrica, XXVII, pp. 157-76. 4. Phelps Brown, E. H. [1957] 'The Meaning of the Fitted Cobb-Douglas Production Function', Quarterly Journal of Economics, LXXI, pp. 546-60. 5. Fisher, F. M. [1969] 'The Existence of Aggregate Production Functions', Econometrica, xxxvn, pp. 553-77. 6. Fisher, F. M. [1970] 'Aggregate Production Functions and the Explanation of Wages: A Simulation Experiment', Working Paper 61, Department of Economics, M.I.T. _____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Phelps Brown I Henry Phelps Brown Egalitarianism and the Generation of Inequality Oxford 1988 Harcourt I Geoffrey C. Harcourt Some Cambridge controversies in the theory of capital Cambridge 1972 |
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