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Substitution versus Fixed Production Coefficients: A Comment

Mordecai Kurz

Abstract

In a recent issue of Econometrica,^2 Leif Johansen suggested a synthesis of models in which fixed production coefficients are assumed and models in which substitution of factors is allowed. It is claimed in what follows that the solution of the problem by Johansen is not always efficient; more specifically, if labor productivity rises through time, Johansen's solution represents an inefficient allocation of the labor force. Furthermore, in the two examples which he presented in Sections (3) and (4) (pages 165 and 168) labor productivity does rise. An alternative formulation free of this difficulty is presented.