Input Substitution Research Articles

Will using newer input–output data for general equilibrium modeling provide a better estimate for the CO2 mitigation cost?

ABSTRACT We provide a critical evaluation about how updating the input–output data of a computable generation equilibrium model can affect policy results, an assessment that is rarely done in existing literature. Specifically, we explore how datasets with different fossil energy cost shares alter results of policy simulations that aim at reducing CO2 emissions. We prove analytically that a sudden fossil fuel price surge, which provides little time for adjustment through input substitution, can lead to a higher CO2 mitigation cost. The finding is demonstrated empirically in a full-scale economy-wide model for a base year with lower fossil fuel prices, contrasted with results from a base year when fossil fuel prices spiked. We then propose an adjustment to resolve the issues of using input–output data that embed abrupt fossil fuel price hikes.

How technological progress affects input substitution and energy efficiency in China: A case of the non-ferrous metals industry

Technological progress leads to factor shares change by changing the marginal productivity of factors or the substitution elasticity between factors. This is a key energy issue affecting total factor energy performance. The study used data from 1980 to 2016 of China’s non-ferrous metals industry (CNMI). In the first part, the paper employs ridge regression to study the substitution effect and technological progress difference among factor inputs. Second, the paper analyzed the impact of technical indexes on energy performance by using the Data Envelopment Approach (DEA)-Malmquist framework. The results show a higher output elasticity of labor (0.300–0.451) than that of energy (0.289–0.403) and capital (0.230–0.346). China’s non-ferrous metals industry shows labor-biased technological progress. The results indicate the existence of mutual substitution relations among the three factors. The substitution elasticity among input factors shows a convergence trend. The substitution elasticity between labor and energy (1.062–1.199) emerge as the highest. This is followed by the substitution elasticity of energy for capital. In addition, the technological progress difference between the three inputs become smaller gradually. Whether from the national average or regions, energy performance has improved significantly, which benefits from the impact of technological progress and changes technical efficiency.

Zadłużenie rolników w Polsce w aspekcie przemian strukturalnych i koniunktury w rolnictwie

W artykule dokonano analizy dynamiki oraz struktury zobowiązań kredytowych rolników wobec banków w Polsce w latach 1996-2018. Zadłużenie kredytowe rolników przedstawiono na tle przemian strukturalnych i koniunktury w rolnictwie. Założono, że korzystna koniunktura w rolnictwie stymuluje wzrost zadłużenia rolników w bankach. Podobnie założono, że proces koncentracji struktury agrarnej oraz wzrost technicznego uzbrojenia pracy i technicznego uzbrojenia ziemi będą czynnikami sprzyjającymi wzrostowi zadłużenia kredytowego rolników. Badania nie dały jednoznacznej odpowiedzi na postawione tezy badawcze. Ujawniono dodatnią współzmienność pomiędzy zadłużeniem kredytowym rolników a koniunkturą w rolnictwie, a także procesem substytucji nakładów pracy i ziemi przez nakłady kapitału. Analiza regresji wykazała, że stymulantą zadłużenia kredytowego są nakłady inwestycyjne w rolnictwie, natomiast koncentracja struktury agrarnej oraz poprawa relacji ziemia/praca prowadzi do zmniejszenia przyrostów zadłużenia.

Economic consequence analysis of electric power infrastructure disruptions: General equilibrium approaches

Abstract We develop a stylized two-sector analytical general equilibrium model that elucidates mechanisms of adjustment to widespread, long-duration electric power disruptions. Algebraic solutions illustrate the relative importance of resilience through producer and consumer input substitutability and mitigation investment in backup infrastructure capacity in moderating the economy-wide costs of outages. Simulations of the impacts of a two-week power outage on California's Bay Area economy using both the analytical model and a computational general equilibrium model yield welfare losses that are substantially smaller than stated-preference estimates of willingness to pay. Results highlight the role of resilience in moderating consequences of energy supply shocks.

Towards a carbon-neutral economy: The dynamics of factor substitution in Germany.

This paper investigates the elasticity of substitution between four inputs-capital, labor, energy, and material-with the translog cost approach for a wide range of industries in Germany by incorporating the slow adjustment process in factor substitution. To this end, we take advantage of EU KLEMS database covering a wide range of industries and consider two models. The first is the static model, in which instantaneous and complete substitution adjustments are assumed. The other model, referred to as dynamic, takes into account the slow adjustment process and applies this to the cost share equations which are estimated using Zellner's seemingly unrelated regression. The empirical results suggest that (i) the dynamic models have greater explanatory power than the static models; (ii) the production process at the national or industry level in Germany is mainly characterized by a complementarity or weak substitutability between energy and other inputs, which limits German government's ability to reduce energy use through factor substitution; (iii) among four factor prices, energy demand seems to be more sensitive to changes in the price of material, followed by labor. Hence, an increase in energy prices can be efficient to some extent in order to reduce energy use; (iv) there is a substantial industry heterogeneity in Germany in terms of both input substitution and its adjustment process. Therefore, strategies to mitigate CO2 emissions through input substitution channel should be designed at the industry level based on the industry-specific needs and peculiarities. It is because well-designed comprehensive policies that consider different structures of industries could help to achieve a carbon-neutral economy for Germany.

Technological and operational characteristics of the Chilean water and sewerage industry: A comparison of public, concessionary and private companies

Evaluating the technological and operational characteristics of the water and sewerage industry is interesting for researchers and policy makers. In this study an input distance function was applied to evaluate the technical efficiency, synergies between water and sewerage services, economies of scale and input substitutability for a sample of fully private, concessionary and public Chilean water companies over the years 2007–2015. The results indicate that, on average, the water industry reported high levels of technical efficiency over time. Lower costs can be achieved by forming larger companies through mergers and keeping water and sewerage companies integrated. Companies can further improve their efficiency by substituting labour with capital and operating expenses and adopting innovative strategies that allow them to manage their assets more efficiently and improve their environmental performance. The findings of this study are useful for water regulators to support decision making and introduce policies, incentives, and penalties to improve the performance of water companies over time.

Capital, labor, and derived demand for information: Evidence from China

In this paper, information capital is considered as a separate input of production along with noninformation capital and labor. The substitution possibility among information capital, noninformation capital and labor has been estimated by nonlinear iterative algorithm using Chinese data for 1995–2017. The empirical results from the study imply that estimates of Chinese input substitution degree and productivity are underestimated without including information capital as an input separate from noninformation capital. When information capital and labor are combined, the contribution ratio of labor force may increase. Information capital interacts with noninformation capital and labor to promote economic development and production efficiency.

Odhad elasticity substitúcie vstupov v slovenskej ekonomike

The elasticity of substitution between labour and capital in the Slovak economy is estimated in the paper. We used an econometric specification of capital and labour demand and data from the National Bank of Slovakia's macroeconomic database. In order to filter the processes caused by short-term shocks, the data were adjusted using the frequency filter. Using the Breusch and Pagan test, we have shown that the stochastic terms of capital and labour demand are related. Therefore, we did not use only the least squares method to estimate both specifications, but we also estimated a system of two equations with seemingly unrelated regression. The paper is extended with a discussion showing that the relatively low value of the input substitution elasticity could theoretically be explained by the transitive nature of the Slovak economy during the studied period. The elasticity of substitution between labour and capital in the Slovak economy was relatively low in the period 1997-2014; we estimated its value in the range from 0.03 to 0.11 depending on the choice of the database version.

Firm Response to Competitive Shocks: Evidence from China’s Minimum Wage Policy

Abstract The large regional variation in minimum wage levels during the period 2002–8 in China implies that Chinese manufacturing firms experienced competitive shocks as a function of firm location and their low-wage employment share. We find that minimum wage hikes accelerate the input substitution from labour to capital, reduce employment growth and accelerate total factor productivity growth—particularly among the less productive firms under private Chinese or foreign ownership, but not among state-owned enterprises. The heterogeneous firm response to labour cost shocks can be explained by differences in management practices and suggests that management quality and competitive pressure are complementary.

Child Skill Production: Accounting for Parental and Market-Based Time and Goods Investments

This paper studies the multidimensional nature of investments in children within a dynamic framework. In particular, we examine the roles of parental time investments, purchased home goods/services inputs, and market-based child care services. We first document strong increases in total investment expenditures by maternal education; yet expenditure shares, which skew heavily towards parental time, vary little with parental schooling. Second, we develop an intergenerational lifecycle model with multiple child investment inputs to study these patterns and the impacts of policies that alter the prices of different inputs. We analytically characterize investment behavior, focusing on the substitutability of different investment inputs and the way parental skills affect the productivity of family-based inputs. Third, we develop an estimation strategy that exploits intratemporal optimality conditions based on relative demand to estimate substitutability between inputs, the relative productivity of different inputs, and the role played by parental education. This approach requires no assumptions about the dynamics of skill investment, preferences, or credit markets. We also account for mismeasured inputs and wages, as well as unobserved heterogeneity in parenting skills. We further show how noisy measures of child achievement (measured several years apart) can also be incorporated in a generalized method of moments approach to additionally identify the dynamics of skill accumulation. Fourth, we use data from the Child Development Supplement of the Panel Study of Income Dynamics to estimate the skill production technology for children ages 12 and younger. Our estimates suggest complementarity between parental time and home goods/services inputs as well as between these family-based inputs and market-based child care, with elasticities of substitution ranging from 0.2 to 0.5. We find no systematic effects of parental education on the relative productivity of parental time and other home inputs. Finally, we use counterfactual simulations to explore the extent and sources of variation in investments across families, as well as investment responses to changes in input prices. We find that variation in prices explains 48% of the overall variance in investment expenditures, and differences in wages explain more than half of the investment expenditure gap between college-educated and non-college-educated parents. We further show that accounting for the degree of input complementarity implied by our estimates has important implications for the responses of individual inputs to any price change and for the responses in total investments and skill accumulation to large (but not small) price changes. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Does Edtech Substitute for Traditional Learning? Experimental Estimates of the Educational Production Function

Experimental studies rarely consider the shape and nature of the education production function, which is useful for deriving optimal levels of input substitution in increasingly resource constrained environments. Because of the rapid expansion of EdTech as a substitute for traditional learning around the world and against the backdrop of full-scale temporary substitution due to the coronavirus pandemic, we explore the educational production function by using a large randomized controlled trial that varies dosage of computer-assisted learning (CAL) as a substitute for traditional learning. Results show production is concave in CAL. Moving from zero to a low level of CAL, the marginal rate of technical substitution (MRTS) of CAL for traditional learning is greater than one. Moving from a lower to a higher level of CAL, production remains on the same or a lower isoquant and the MRTS is equal to or less than one. The estimates are consistent with the general form of a Cobb-Douglas production function and imply that a blended approach of CAL and traditional learning is optimal. The findings have direct implications for the rapidly expanding use of educational technology worldwide and its continued substitution for traditional learning. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Elasticity of substitution and technical efficiency: evidence from the US electricity generation

ABSTRACTThe implications of national or regional energy policies for technical efficiency and environmental outcomes in electricity generation depend on fossil fuel input substitution. This study uses state level data to examine fossil fuel (coal and natural gas) substitution in electricity generation under increased availability of natural gas in the United States. We observe that changes in elasticities of substitution from pre-2009 to post-2009 differ across states suggesting that the effects of increased availability of inexpensive natural gas on electricity generation have been spatially heterogeneous. We rely on the observed heterogeneity to assess the effects of fossil fuel input substitution on technical efficiency and CO2 emissions. The results reveal that state level elasticity of substitution between natural gas and coal has a positive effect on technical efficiency and a negative effect on CO2 emissions. Therefore, future policy design and analyses should reflect the implications for regional elasticities of fossil fuel substitution and associated environmental outcomes.

Economic elasticities of input substitution using data envelopment analysis.

The use of elasticities of substitution between inputs is a standard method for addressing the effect of a change in the mix of inputs used for production from a technical or cost standpoint. Most estimation methods use parametric production or cost functions or frontiers to estimate these elasticities. A potentially useful nonparametric alternative is data envelopment analysis (DEA). The purpose of this paper is to derive elasticities of input substitution for both technical and cost frontiers using DEA, extending the use of this approach in the field of economics and associated fields. The paper provides derivations for both Hicksian (production and cost frontier) and Morishima (cost frontier) elasticities of input substitution, as well as a parsimonious method for estimating them using DEA. The derivations are presented using an agricultural example form Kansas, USA.

Measuring the energy input substitution and output effects of energy price changes and the implications for the environment

Previous studies of decomposition of factor inputs have limited their analysis on the estimation of substitution and output effects. However, this paper develops a two-step approach to estimate the substitution and output effects of changes in energy demand resulting from changes in prices and further examines the implications of these effects on CO2 emissions using European industrial dataset over the period 1995–2007. In our empirical estimations, instead of relying only on iSUR model like previous studies, we introduced a multilevel model, which is a more befitting model to our data. Our analysis covers industry as a whole and for different sector types. The primary results emerged from our analysis suggest a strong evidence using the multilevel model. Generally, our results show that production inputs are substitutable. We find the substitution and output effects to be negatively related to CO2 emissions, however, the substitution effects dominate. From policy perspectives, our results suggest that output adjustments may not play a significant role in reducing emissions. We find the overall effects of changes in energy demand to be moderate. Then, we argue that increment in energy taxes should be complemented by cleaner factor substitution and sustainable growth to achieve a desirable carbon reduction.

An Analysis of Input Substitution Elasticity in Natural Resource-Based Industry in Indonesia. The Application of CES Function

The proportion of resource-based industry groups in the industrial structure in Indonesia is 42.01%, yet its productivity is low because of its labor-intensive nature and limited capital, despite the direct contribution of the use of capital and labor to the creation of output. To optimize production, an input can be substituted by another input. However, it depends on the elasticity of substitution of the two inputs. The main objective of this research is to analyze the level of substitutability of inputs used in the natural resource-based industry group in Indonesia. Using the function of Constant Elasticity of Substitution (CES), the results of the study show that the substitutability level of capital and labor is inelastic, meaning that input substitution is relatively difficult. The results of this study imply that to increase its productivity, this industry group needs to strengthen the support from (government) policies to improve its workforce quality.

Impact of Agroecological Practices on Greenhouse Vegetable Production: Comparison among Organic Production Systems

In greenhouses, where intensive systems are widely used for organic production, the differences between “conventionalized” and agroecological approaches are especially evident. Among the agronomic practices, green manure from agroecological service crops (ASCs) and organic amendments represent the main tools for soil fertility management with respect to the substitution of synthetic fertilizer with organic ones (the input substitution approach). Over a two-year organic rotation, we compared a conventionalized system (SB) and two agroecological systems, characterized by ASC introduction combined with the use of manure (AM) and compost (AC) amendments. A system approach was utilized for the comparison assessment. For this purpose, agronomic performance, soil fertility and the density of soil arthropod activity were monitored for the entire rotation. The comprehensive evaluation of the parameters measured provided evidence that clearly differentiated SB from AM and AC. The drivers of discrimination were soil parameters referring to long term fertility and soil arthropod dynamics. The study confirmed the higher productivity of SB but also no positive impact on soil fertility and soil arthropods, as highlighted by AM and AC. Based on the results, a trade-off between productivity and the promotion of long-term ecosystem diversity and functioning is needed for the assessment of systems of organic production.

Environmental and productive performance of different blueberry (Vaccinium corymbosum L.) production regimes: Conventional, organic, and agroecological

Certified organic agriculture stipulates a set of principles and standards which run farmer practices. The current global demand for organic food has raised new challenges for organic agriculture, which can be difficult to address when management is subject to the forces of conventionalisation. Using production of highbush blueberry (Vaccinium corymbosum L.) as a target crop, we analyze environmental impacts comparing three different types of management in south-central Chile: conventional orchards (CO), orchards with organic management based on input substitution (OI), and orchards with organic management based on agroecological principles (OA). We compare these production systems from an environmental and economical perspective using four blueberry orchards for each type of management. Impacts in global warming (referred to as greenhouse gas emissions), acidification, and freshwater eutrophication were estimated using Life Cycle Analysis. Production costs and fruit yields were also quantified for each orchard studied. Blueberry yields were not different among farming systems, although OA achieved the highest one (8.47 ton/ha), with the lowest both cost of production (2265 US $/ha yr.). All environmental impacts were higher for CO. Overall, OA turned out as the most efficient production systems both from an environmental and economic perspective.

Functional Testing of Vestibulo-Spinal Contributions to Balance Control: Insights From Tracking Improvement Following Acute Bilateral Peripheral Vestibular Loss.

Background: A battery of stance and gait tasks can be used to quantify functional deficits and track improvement in balance control following peripheral vestibular loss. An improvement could be due to at least 3 processes: partial peripheral recovery of sensory responses eliciting canal or otolith driven vestibular reflexes; central compensation of vestibular reflex gains, including substitution of intact otolith responses for pathological canal responses; or sensory substitution of visual and proprioceptive inputs for vestibular contributions to balance control.Results: We describe the presumed action of all 3 processes observed for a case of sudden incapacitating acute bilateral peripheral loss probably due to vestibular neuritis. Otolith responses were largely unaffected. However, pathological decreases in all canal-driven vestibular ocular reflex (VOR) gains were observed. After 3 months of vestibular rehabilitation, balance control was normal but VOR gains remained low.Conclusions: This case illustrates the difficulty in predicting balance control improvements from tests of the 10 vestibular end organs and emphasizes the need to test balance control function directly in order to determine if balance control has improved and is normal again despite remaining vestibular sensory deficits. This case also illustrates that the presence of residual otolithic function may be crucial for balance control improvement in cases of bilateral vestibular hypofunction.

Economic effects of an E-mobility scenario – input structure and energy consumption

The development of a strong domestic market for E-mobility is given a high priority and it is counted as an impulse for the transformation towards a Green Economy in Germany. Replacing the combustion engine by alternative drives can trigger a variety of macroeconomic effects. The paper presents the results of a model-based analysis. In particular, effects on the value chain of the automotive industry and the demand for consumer goods are explicitly modelled. An E-mobility scenario that meets the six million E-vehicles by a 2030 target is compared with a reference scenario. Assuming a substitution of inputs within the automotive industry by inputs from the electrical engineering sector, negative effects in vehicle production are offset by positive effects in energy technology production. For the macroeconomic effects, the development of imports and exports is crucial. In the scenario comparison presented here, short- to medium-term employment effects are slightly positive.

A Path Transition Towards a Bioeconomy—The Crucial Role of Sustainability

The bioeconomy is a worldwide used strategy to cope with ecological, social, and economic sustainability challenges. However, we analyze current bioeconomy strategies and trends to point out potential sustainability conflicts and transition challenges. Our analysis shows that the bioeconomy is not sustainable per se, as mere input substitution may entail welfare losses. Instead, it requires further debates and actions to avoid exacerbation of ecological and social strains. Sustainability has to be the key concept behind the bioeconomy and predominantly requires (1) sustainability of the resource base and (2) sustainability of processes and products, especially by (3) circular processes of material fluxes, not least to gain consumer acceptance for bio-based products. Otherwise, the bioeconomy would only entail the substitution of fossil resources for bio-based resources potentially lacking the generation of additional societal and ecological benefits and contribution to climate mitigation. As markets alone will not suffice to fulfil this path transition towards a sustainable bioeconomy, we argue that innovative governance is necessary to reduce competitive drawbacks compared to fossil resources (enabling function) and to secure ecological, social, and economic sustainability requirements (limiting function).