Economic Theory Of Production Research Articles

Identifying farmers' response to changes in marginal and average subsidies using deep learning

AbstractMuch of the developed world has adopted substantial, complex agricultural subsidy schemes in an attempt to produce desired rural livelihood and environmental outcomes. Understanding how farmers adjust their production activity in response to farm subsidies is crucial for setting optimal agricultural policy. Whereas standard economic theory suggests that farmers largely adjust production levels in response to prices and marginal subsidy rates, recent work in consumer behavior suggests that average (dis‐)incentives may play a relevant role. We use a unique panel covering all farms applying for subsidies in Norway and a flexible deep‐learning method to exploit kinks in the subsidy scheme to answer whether farmers respond more to average or marginal subsidies. In contrast to the standard economic theory of production, we find suggestive empirical evidence that farmers respond more to changes in average payments than to changes in marginal payments. We anticipate that our findings on the relevance of average payment levels for farmers' decision making may inspire further theoretical and empirical inquiries into agricultural policy effects. The study also highlights how novel deep‐learning tools can be applied for detailed policy analysis and what advantages and challenges come with it. We believe that this approach has substantial potential for analysts and policymakers to evaluate and predict the impacts of policy options.

Ecological and economic trade-offs between amount and spatial aggregation of conservation and the cost-effective design of coordination incentives

To counter not only the continuous loss but also the fragmentation of species habitats, coordination incentives (CI) have been proposed to incentivise the spatial aggregation of conservation efforts. An important issue is the cost-effective design of these instruments. Two main types of CI, the agglomeration bonus and the agglomeration payment, are analysed with stylised models. Their ecological effects are assessed through a metapopulation simulation model. Rather than choosing the usual approach and analysing the joint ecological-economic model, I analyse the ecological and economic sub-models separately and join the results within an economic production theory framework in which production factors (here, the proportion and aggregation of conserved land parcels) are financed under a budget- or cost constraint and generate an output (here, metapopulation viability). This decomposition of the ecological-economic analyses allows highlighting the ecological and economic trade-offs between proportion and spatial aggregation of conservation and generating a more general understanding of the budget- and cost-effectiveness of CI. Results include, among others, that the agglomeration payment is never more budget- and cost-effective than the agglomeration bonus and that in the agglomeration bonus the budget-effective level of spatial aggregation is lower than the cost-effective level.

Refuting Samuelson’s capitulation on the re-switching of techniques in the Cambridge capital controversy

Paul A. Samuelson’s (1966) capitulation with his Austrian model during the so-called Cambridge controversy on the phenomenon of re-switching of techniques in capital theory had implications not only in pointing at the supposed internal contradiction of the marginal theory of production and distribution but also in the pursuit of vested interests in the academic and political world to this day. The present paper is aimed at demonstrating that Samuelson’s capitulation was logically groundless from the point of view of the economic theory of production by considering the interest rate in the role of the real price of capital goods instead of the stationary real rental prices as correctly suggested by Leon Walras, Knut Wicksell, John Hicks, and others. Because of the non-linear effects of the interest rate on relative input prices, the Sraffian re-switching of techniques noted in the range of the interest rate always disappears in the space of the corresponding real input prices in the stationary equilibrium.

The cost-effectiveness of economic resilience

Society is increasingly focused on resilience to catastrophic events. Firms generally observe two forms of economic disruption, property damage and business interruption (BI). In contrast to pre-event mitigation intended primarily to avoid property damage, firms can use a variety of resilience tactics once the disaster strikes to reduce BI losses by improving stability and continuity of operations. This paper makes a theoretical contribution by incorporating resilience into longstanding economic production theory and by identifying the key components for evaluating the cost and effectiveness of resilience. It also makes important empirical contributions by designing, administering, and analyzing surveys of firms affected by two of the most devastating disasters in US history. This paper is the first to econometrically analyze these production theory relationships, identifying the cost-effectiveness of a full range of explicit resilience tactics. Results show that BI losses exceeded property damage losses by over 900% and, on average, firms avoided $4.57 in BI for every dollar spent on resilience. Generalizable comparative static estimates are presented for the manufacturing sector to test formalized relationships, which identify that tactics capable of improving factor productivity can significantly enhance the cost-effectiveness of resilience.

Crop yield response functions in nutrient application: A review

AbstractThe question of the optimal nutrient application in agricultural production continues to gather attention because of its relevance in increasing the profitability of crop production and protecting the environment. Economically optimal nutrient application decision rules are commonly derived by fitting crop yield functions to nutrients. The choice of the appropriate yield functional form thus is critical for estimating unbiased and more precise nutrient recommendations. This review explores recent developments in yield response functions to the nutrient application. We first introduce the concept of the economic theory of production and yield response functions. We then explain, with mathematical equations, some commonly used functional forms: quadratic response, Mitscherlich–Baule, deterministic, and stochastic plateau functions. We also summarize the strengths and weaknesses of each functional form and its implications for nutrient management strategies from an economic perspective. In recent studies, researchers have suggested that stochastic plateau functional forms, both linear and quadratic, could explain yield response to the nutrient application in a better way. Finally, we recommend fitting stochastic plateau functions in conjunction with carryover information in a dynamic optimization setting may yield more accurate optimal nutrient levels. Future research should continue to investigate whether these functional forms perform better in different crop and soil environments.

Theory of production in construction industry

In the absence of an explicit and specific theory, the management of production processes in construction is essentially based on a Taylorist view, based on the economic theory of production. Thus, given the particularities of construction, the plans developed are often unreal, with recurring delays and unforeseen circumstances during production. Thus, because of the importance and the latent need to develop a specific theory, this article uses a systematic literature review (SLR) to comprehend what has been developed and discuss the topic. The main objective is to answer the following research questions: 1) What is being proposed to develop a production theory applied to construction? 2) What is the approach used in the publications? 3) What can be proposed for the body of knowledge in question to fill gaps? Based on the results of the SLR, it was verified that the development of such a theory appears to be very incipient and not formalized in the publications, with inconclusive results and weak multidisciplinary cooperation. Furthermore, there are indications that authors associated with Lean Thinking may be leading research on production theory in construction since most of the publications have results that were conceptually based on Lean Construction principles. It is understood that the content of this article is relevant because it outlines the current stage of development of the theory and indicates possible paths to achievements.

Efficiency analysis of Catalonia’s construction industry pre- and post-financial crisis: a data envelopment analysis (DEA) approach

By employing a non-parametric technique rooted in economic production theory—i.e., Data Envelopment Analysis (DEA)—this study evaluates the efficiency level of construction businesses operating in the Spanish region of Catalonia. The empirical application considers a dataset including information for more than 1000 construction businesses from Catalonia during the period 2005-2016. The empirical results reveal that the efficiency level in the Catalan construction industry drastically fell during the period of economic downturn (2009-2012). Also, the findings show that efficiency in the industry improves after 2013; however, the speed of recovery is heterogeneous across businesses. A further analysis highlights that business size is a relevant factor explaining efficiency differences among the sampled businesses: efficiency is evidently lower in micro businesses compared to the figures reported for small and medium and large construction firms

Interlinkages between human agency, water use efficiency and sustainable food production

Efficient use of water and nutrients in crop production are critical for sustainable water and crop production systems. Understanding the role of humans in ensuring water and nutrient use efficiency is therefore an important ingredient of sustainable development. Crop production functions are often defined either as functions of water and nutrient deficiency or are based on economic production theory that conceptualizes production as a result of economic activities that take in inputs such as water, capital and labor and produce crop biomass as output. This paper fills a gap by consistently treating water and nutrient use and human agency in crop production, thus providing a better understanding of the role humans play in crop production. Uptake of water and nutrients are two dominant biophysical processes of crop growth while human agency, including irrigation machine power, land-preparing machine power and human labor force, determine limits of water and nutrient resources that are accessible to crops. Two crops, i.e., winter wheat and rice, which account for the majority of food crop production are considered in a rapidly developing region of the world, Jiangsu Province, China, that is witnessing the phenomenon of rural to urban migration. Its production is modeled in two steps. First water and nutrient efficiencies, defined as the ratios of observed uptake to quantities applied, are modeled as functions of labor and machine power (representing human agency). In the second step, crop yields are modeled as functions of water and nutrient efficiencies multiplied by amounts of water and fertilizers applied. As a result, crop production is predicted by first simulating water and nutrient uptake efficiencies and then determining yield as a function of water and nutrients that are actually taken up by crops. Results show that modeled relationship between water use efficiency and human agency explains 68% of observed variance for wheat and 49% for rice. The modeled relationship between nutrient use efficiency and human agency explains 49% of the variance for wheat and 56% for rice. The modeled relationships between yields and actual uptakes in the second step explain even higher percentages of observed the variance: 73% for wheat and 84% for rice. Leave-one-out cross validation of yield predictions shows that relative errors are on average within 5% of the observed yields, reinforcing the robustness of the estimated relationship and of conceptualizing crop production as a composite function of bio-physical mechanism and human agency. Interpretations based on the model reveal that after 2005, mechanization gradually led to less labor being used relative to machinery to achieve same levels of water use efficiency. Labor and irrigation equipment, on the other hand, were found to be complimentary inputs to water use efficiency. While the results suggest interventions targeting machinery are most instrumental in increasing wheat productivity, they may exasperate rural – urban migration. Policy strategies for alleviating rural-urban migration while ensuring regional food security can nonetheless be devised where appropriate data are available.

Refuting Samuelson's Capitulation on the Re-switching of Techniques in the Cambridge Capital Controversy

Paul A. Samuelson's (1966) capitulation during the so-called Cambridge controversy on the phenomenon of re-switching of techniques in capital theory had implications not only in pointing at a supposed internal contradiction of the marginal theory of production and distribution, but also in preserving vested interests in the academic and political world to this day. based on a new non-switching theorem (MIalana, 2019), the present paper is aimed at demonstrating that Samuelson's capitulation was logically groundless from the point of view of the economic theory of production.

On input-output economic models in disaster impact assessment

During the last decades, input-output (I/O) economic models have assumed a prominent role in disaster impact analysis and resilience assessment. Rooted in general equilibrium theory and economic production theory, they catalyse attention on the distinction between direct economic losses and ripple effects that may be generated inside a multi-industry system as a consequence of perturbations. Empowering the I/O analysis framework and overcoming some of its inherent limitations is crucial in order to successfully approach emerging disaster assessment challenges, such as multi-regional loss quantification and the investigation of shock responses in global supply chains. In this paper, we review and discuss how different disaster modeling aspects have been incorporated in recent contributions exploiting I/O techniques, taking into account both demand- and supply-sided perturbation triggers, static and dynamic representations, as well as the assessment of economic resilience.

Optimistic and pessimistic performance and congestion analysis in fuzzy data envelopment analysis

The notion of input congestion in data envelopment analysis (DEA) is analogous to the 'law of diminishing returns' in the classical economic theory of production which states that if a single input is increased while other inputs are held constant, the marginal product of the variable input diminishes. Congestion has been an under-researched topic in economic theory especially when there is a need for augmenting inputs to serve important objectives besides output maximisation. We propose a fuzzy DEA model and represent the imprecise and ambiguous input and output data with fuzzy numbers. We solve the model with an α-cut approach and obtain the value of input congestion for the optimistic and pessimistic cases. The fundamental idea in this paper is to transform the fuzzy DEA model into a crisp linear programming model using the α-cut approach. Two auxiliary crisp models are solved to obtain optimistic and pessimistic values of congestion for evaluating the decision-making units (DMUs). We use a numerical example from the literature to demonstrate the applicability of the proposed method and exhibit the efficacy of the procedures and algorithms.

Is higher nursing home quality more costly?

Widespread issues regarding quality in nursing homes call for an improved understanding of the relationship with costs. This relationship may differ in European countries, where care is mainly delivered by nonprofit providers. In accordance with the economic theory of production, we estimate a total cost function for nursing home services using data from 45 nursing homes in Switzerland between 2006 and 2010. Quality is measured by means of clinical indicators regarding process and outcome derived from the minimum data set. We consider both composite and single quality indicators. Contrary to most previous studies, we use panel data and control for omitted variables bias. This allows us to capture features specific to nursing homes that may explain differences in structural quality or cost levels. Additional analysis is provided to address simultaneity bias using an instrumental variable approach. We find evidence that poor levels of quality regarding outcome, as measured by the prevalence of severe pain and weight loss, lead to higher costs. This may have important implications for the design of payment schemes for nursing homes.

Measurement of energy efficiency based on economic foundations

Energy efficiency policy is seen as a very important activity by almost all policy makers. In practical energy policy analysis, the typical indicator used as a proxy for energy efficiency is energy intensity. However, this simple indicator is not necessarily an accurate measure given changes in energy intensity are a function of changes in several factors as well as ‘true’ energy efficiency; hence, it is difficult to make conclusions for energy policy based upon simple energy intensity measures. Related to this, some published academic papers over the last few years have attempted to use empirical methods to measure the efficient use of energy based on the economic theory of production. However, these studies do not generally provide a systematic discussion of the theoretical basis nor the possible parametric empirical approaches that are available for estimating the level of energy efficiency. The objective of this paper, therefore, is to sketch out and explain from an economic perspective the theoretical framework as well as the empirical methods for measuring the level of energy efficiency. Additionally, in the second part of the paper, some of the empirical studies that have attempted to measure energy efficiency using such an economics approach are summarized and discussed.

Measurement of Energy Efficiency Based on Economic Foundations

Energy efficiency policy is seen as a very important activity by almost all policy makers. In practical energy policy analysis, the typical indicator used as a proxy for energy efficiency is energy intensity. However, this simple indicator is not necessarily an accurate measure given changes in energy intensity are a function of changes in several factors as well as ‘true’ energy efficiency; hence, it is difficult to make conclusions for energy policy based upon simple energy intensity measures. Related to this, some published academic papers over the last few years have attempted to use empirical methods to measure the efficient use of energy based on the economic theory of production. However, these studies do not generally provide a systematic discussion of the theoretical basis nor the possible parametric empirical approaches that are available for estimating the level of energy efficiency. The objective of this paper, therefore, is to sketch out and explain from an economic perspective the theoretical framework as well as the empirical methods for measuring the level of energy efficiency. Additionally, in the second part of the paper, some of the empirical studies that have attempted to measure the energy efficiency using such an economics approach are summarised and discussed.

Language competition: an economic theory of language learning and production

AbstractThis article employs game theory to contribute to sociolinguistics (or the economics of language). From both the synchronic and the diachronic perspective, we are interested in the conditions (of language learning and literary production) that make some languages dominate others. Two results are particularly noteworthy: (i) Translations have an ambiguous effect on domination. (ii) We offer three different explanations of how a past language like Latin or Sanskrit can develop into a standard for literary production.

Application of index number theory to the construction of a water quality index: Aggregated nutrient loadings related to the areal extent of hypoxia in the northern Gulf of Mexico

Numerous studies have linked individual nutrient loadings from the Mississippi and Atchafalaya Rivers to the growth of the hypoxic, or oxygen depleted, zone in the northern Gulf of Mexico. However, in the discussion of policy to remediate Gulf hypoxia, it is beneficial for stakeholders and policymakers to obtain a single measure for water quality that characterizes information from multiple water pollutants. This study aggregates loadings from six nutrients measured at the entrance to the Gulf of Mexico into a single time-varying index of water quality. The index is constructed using traditional index number theory originating from economic production theory, mainly, Shephard’s distance functions calculated using data envelopment analysis (DEA). The methodology is an advance over other index construction schemes because the determined metric weights are endogenous, calculated from the data itself, and do not require external user input. To validate the index, May values of the index are used within a statistical regression model to model the areal extent of Gulf hypoxia using mid-July cruise measurements from 1985 to 2013, excluding 1989 when no cruise data were available. Regression results (R2adj=0.81) suggest the index is successful at aggregating multiple pollutants into a single measure of water quality and may be useful for tracking their aggregated effect on the growth of the hypoxia area in the northern Gulf of Mexico. Calculation of the water quality index described here is automatic in the sense that no human intervention is required for variable selection, statistical analysis or assignment of weights. This is very useful for specifying a water quality objective in a multiple objective optimization for watershed management.

Estimation of Market Capitalization and Economic Growth in India

Capital formation is an integral part of economic growth and development and plays an important role in the economic theory of production and distribution. It is assumed that capital accumulation with a positive correlation and additions to the stock of capital can facilitate faster rate of growth. Traditionally growth rate depends upon growth of industrial, agriculture and service sector but stock market is also one of the major sectors for capital formation and has straight impact on the economy across the world. Hence, stock market in developing economies such as India is also growing very fast and it is estimated that Indian stock market is a trillion-dollar industry. Recently the Indian stock market is witnessing heightened activities and is increasingly gaining importance. Therefore, the present study attempts to capture the trends and patterns of market capital, domestic saving, GDP growth in Indian context using growth model. It also investigates the relationship between market capitalisation, saving and GDP growth over the last three decades or so. The results indicate further growth of market capitalisation and positive association between macro indicators.

Correction for variations in capacity utilization in the measurement of productivity growth: A non-parametric approach

The multifactor productivity growth estimate published by statistical agencies should be corrected for the effect of the short run variations in capacity utilization for such estimate to be a measure of technological progress. But such correction is not normally made as the rate of capacity utilization is often not observed. This paper develops a nonparametric approach for adjusting multifactor productive growth measure for variation in capacity utilization over time. In the approach developed here, the capital utilization measure is derived from the economic theory of production and is estimated by comparing the ex-post return with the ex-ante expected return on capital. The approach offers a practical solution that can be used by statistical agencies to adjust for capacity utilization in their multifactor productivity growth measure. The nonparametric approach is implemented using the data for the manufacturing sector from the Canadian Productivity Program of Statistics Canada, and is found to correct for the bias from the variation in capacity utilization in that sector.

Shirking and “choking” under incentive-based pressure: A behavioral economic theory of performance production

Significant empirical evidence exists within psychology and economics that greater incentives under pressure can lead to lower performance outcomes. However, standard economic theory does not account for this possibility. Efficiency wage models, for example, conclude a positive relationship between wage incentives and productivity. While efficiency wage models are shown to describe productivity behavior in numerous settings, said models do not describe labor markets featuring (counterproductive) performance pressure. We put forth a theoretical model of performance production in which performance incentives induce productive effects and counterproductive effects. The model treats explicit monitoring and distraction as distinct, counterproductive processes within a cohesive theory of performance production. In settings featuring performance pressure, we find that higher levels of performance-contingent compensation may decrease not only labor output (i.e., likelihood of task success) but also labor input (i.e., effort) if counterproductive processes decrease the marginal effectiveness of effort sufficiently. The latter finding challenges a common view that performance decrements under pressure occur despite greater effort levels.

Measuring Technical Efficiency in Sports

Standard economic production theory is the basis for measuring technical efficiency in sports. Using programming or regression models, efficiency is defined as the distance of a given team observation from the technology. In this article, the authors show that the standard measures of efficiency using deterministic models are biased downward due to serial correlation with respect to the efficiency measure. In particular, if the number of observed wins for a given team is affected by the team’s inefficiency, it is necessarily true that another team is able to produce outside of the technology. As a result, the observed frontier is not feasible if all inefficiency is eliminated. In this article, the authors propose a correction to this problem and apply new models to estimate efficiency in professional football.