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A NOTE ON THE CHARACTERIZATION OF THE NEOCLASSICAL PRODUCTION FUNCTION

Published online by Cambridge University Press:  09 August 2016

Andreas Irmen  and
Alfred Maußner
Andreas Irmen
Affiliation:
University of Luxembourg and CESifo, Munich
Alfred Maußner*
Affiliation:
University of Augsburg
*
Address correspondence to: Alfred Maußner, Chair of Empirical Macroeconomics, University of Augsburg, Universitätsstrasse 16, D-86316 Augsburg, Germany; e-mail: [email protected].
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Abstract

We study production functions with capital and labor as arguments that exhibit positive, yet diminishing marginal products and constant returns to scale. We show that such functions satisfy the Inada conditions if (i) both inputs are essential and (ii) an unbounded quantity of either input leads to unbounded output. This allows for an alternative characterization of the neoclassical production function that altogether dispenses with the Inada conditions. Although this proposition generalizes to the case of n > 2 factors of production, its converse does not hold: 2n Inada conditions do not imply that each factor is essential.

Keywords

Neoclassical Growth ModelCapital AccumulationInada Conditions
Type
Notes
Information
Macroeconomic Dynamics , Volume 21 , Issue 7 , October 2017 , pp. 1827 - 1835
Copyright
Copyright © Cambridge University Press 2016 

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Footnotes

This paper is a revised version of our CESifo Discussion Paper “Essential Inputs and Unbounded Output: An Alternative Characterization of the Neoclassical Production Function.” We are grateful to the editor, two anonymous referees, Hendrik Hakenes, Amer Tabaković, and Gautam Tripathi for useful comments and suggestions. Andreas Irmen gratefully acknowledges financial support from the University of Luxembourg under the program “Agecon C—Population Aging: An Exploration of its Effect on Economic Performance and Culture.”

References

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