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Production Theory: a new geometrical model to assess productivity in presence of heterogenous firms

19 September 2019 at 12:00 PM - 2:00 PM

Room 207, Campus on Viale Romania, 32

Speaker: Simona Settepanella, Hokkaido University


Production theory, as one of the main topics in economics, is the study of production, or the economic process of converting inputs into outputs, which is also theoretically linked to the study of productivity growth and, hence, of economic growth.

The main quantity to study the source of productivity growth is the change of aggregate productivity over time. In turn aggregate productivity of one industry is defined as a weighted sum of individual productivity of all firms within this industry. In 1-input-1-output case, it is measured by the quotient between output and input, while in multiple-input-output case it is generally measured by mean of a production function. However, the conditions needed to yield a production function are extremely demanding, essentially requiring all the micro-production units in the economy to have identical production functions up to some constant multiplier, which indicates homogeneity of the units in the economy.

On the other hand, in recent years, many empirical studies show high and persistent heterogeneity across firms and time regardless country or disaggregate level. How does one then account for the productivity in such a heterogeneous industry?

In this seminar we will present a new higher-dimensional geometric framework to assess productivity on an heterogeneous industry. This new framework not only allows to assess firm level heterogeneity, productivity and the rate and direction of technical change without requiring many of the standard assumptions from production theory, but, more generally, it provides instruments to re-define and study several of the concept introduced in classical production theory ( such as decomposition of APG, efficient frontier, etc...) without the necessity of defining a production function. This seminar is based on joint works with G. Dosi, M. Grazzi, L. Li and L. Marengo.