Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Jan, 1963, Volume 31, Issue 1

Substitution versus Fixed Production Coefficients: A Comment<209:SVFPCA>2.0.CO;2-#
p. 209-217

Mordecai Kurz

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.

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