Econometrica: Mar 1973, Volume 41, Issue 2
Technology Diffusion, Substitution, and X-Efficiency
T. Y. ShenThis paper examines the possible explanations for the changes in output, capital, and labor input of a sample of manufacturing plants over a number of years. Apart from the scale of operation, these changes could be attributed to three causes: technology diffusion, substitution, and improvements in X-efficiency. The empirical findings indicate that a diffusion model modified to incorporate X-efficiency improvements provides the best explanation. This suggests the need for a new approach to the specification of production functions.
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