Nested Production Function Research Articles

An agent-based model for the assessment of the ripple effect of disaster economic losses considering firms’ adaptive behaviors

Assessing the spatial and temporal ripple effect of disaster economic loss is essential for integrated disaster risk management considering disaster countermeasures dynamically and systematically. Traditional loss estimation models based on general equilibrium theory hardly take the ripple process into account, as they just focus on the equilibrium status of economic system. However, the debate is that system will not reach equilibrium at one stroke and firms' adaptive behaviors will also change the disaster ripple losses. This paper proposes an agent-based model to investigate this phenomenon: the economic linkages among micro-agents are established based on regional input–output table and firms' production behaviors are defined according to nested production functions. The 2020 flood disaster in Hubei Province, China, is taken as an application case which demonstrated the feasibility of agent-based model for assessing the economic loss ripple effect considering firms' adaptive behaviors. Several interesting findings from the application are also drawn. (1) The speed of loss ripple is influenced by the distance to the disaster-stricken region, while the intensity of loss ripple depends on the strength of interregional industry linkages. (2) Round by round ripple effects could be found in non-disaster regions due to the lagged impacts caused by damage of production capacities in other non-disaster regions. (3) Firms' adaptive behavior reduced the ripple losses nearly by 60 % and saved CNY 5.72 billion in this case study. Notably, the gains from overproduction behavior in non-disaster regions are critical, with reducing the loss of CNY 5.8 for every CNY 1 of overproduction.

A New Nested Production Function Approach

A New Nested Production Function Approach

Towards a Dynamic Equilibrium-Seeking Model of a Closed Economy

Economics has long been concerned with the development of tools to help understand and describe the interactions among economic actors including the circular flow of economic resources. This paper expands our available toolkit of models, by describing a novel dynamic equilibrium-seeking model of a closed economy. The model retains many of the key features of state-of-the-art Computable General Equilibrium (CGE) models including economic interdependence, input substitution, nested production functions, and so on. A distinguishing feature of this model is that it adopts price-related balancing feedback loops that simulate the self-regulating behaviour of a dynamic economic system. Our modelling shows not only equilibrium states (as per conventional CGE models), but the transition path toward an often-changing equilibrium. This facilitates the investigation of out-of-equilibrium dynamics and behaviour adaptation typical of largescale disruption events.

Elasticity Estimation for Nested Production Functions with Generalized Productivity

Existing estimation methods for multi-factor CES functions require limiting assumptions about the nature of technical change. We demonstrate how a system of equations and a fixed elasticity in the nested process can provide identification for more flexible specifications and for small data samples. We evaluate the role of energy inputs in an aggregate production function using data for Germany. The use of a Cobb-Douglas process for capital and labor by other studies biases elasticity estimates upwards. The estimated low elasticity means that energy availability is a potentially limiting factor for growth and that productivity gains for capital and labor are energy-using.

Impact analysis of government investment on water projects in the arid Gansu Province of China

In this paper, we introduced three-nested Constant Elasticity of Substitution (CES) production function into a static Computable General Equilibrium (CGE) Model. Through four levels of factor productivity, we constructed three nested production function of land use productivity in the conceptual modeling frameworks. The first level of factor productivity is generated by the basic value-added land. On the second level, factor productivity in each sector is generated by human activities that presents human intervention to the first level of factor productivity. On the third level of factor productivity, water allocation reshapes the non-linear structure of transaction among first and second levels. From the perspective of resource utilization, we examined the economic efficiency of water allocation. The scenario-based empirical analysis results show that the three-nested CES production function within CGE model is well-behaved to present the economy system of the case study area. Firstly, water scarcity harmed economic production. Government investment on water projects in Gansu thereby had impacts on economic outcomes. Secondly, huge governmental financing on water projects bring depreciation of present value of social welfare. Moreover, water use for environment adaptation pressures on water supply. The theoretical water price can be sharply increased due to the increasing costs of factor inputs. Thirdly, water use efficiency can be improved by water projects, typically can be benefited from the expansion of water-saving irrigation areas even in those expanding dry area in Gansu. Therefore, increasing governmental financing on water projects can depreciate present value of social welfare but benefit economic efficiency for future generation.

Supply-side effects of strong energy price hikes in German industry and transportation

This article studies the short-term effects of energy price hikes on the supply of industrial goods and transport services including the repercussions on remuneration of input factors. The empirical analysis is based on a theoretical model, which assumes that the output good is produced by capital, labour and energy according to a nested production function framework where capital and energy are combined by a CES function at the intermediate stage. The output responses to energy price changes are derived, using estimates of the elasticity of substitution. While industry suffered more from the oil price shock of the late 1970s than from that of the early 1970s and the 2004–2008 upsurge, evidence suggests the reverse for transportation. Regarding the impact on income distribution, both sectors share the same pattern, whereby in the recent episode, rising energy costs were more than compensated by falling unit labour costs, while in the 1970s, cost structures had been strained by an expansive wage policy in addition to the oil price shocks.

Rebound and disinvestment effects in refined oil consumption and supply resulting from an increase in energy efficiency in the Scottish commercial transport sector

In this paper, we use an energy–economy–environment computable general equilibrium (CGE) model of the Scottish economy to examine the impacts of an exogenous increase in energy augmenting technological progress in the domestic commercial Transport sector on the supply and use of energy. We focus our analysis on Scottish refined oil, as the main type of energy input used in commercial transport activity. We find that a 5% increase in energy efficiency in the commercial Transport sector leads to rebound effects in the use of oil-based energy commodities in all time periods, in the target sector and at the economy-wide level. However, our results also suggest that such an efficiency improvement may cause a contraction in capacity in the Scottish refined oil supply sector. This ‘disinvestment effect’ acts as a constraint on the size of rebound effects. However, the magnitude of rebound effects and presence of the disinvestment effect in the simulations conducted here are sensitive to the specification of key elasticities of substitution in the nested production function for the target sector, particularly the substitutability of energy for non-energy intermediate inputs to production.

CO 2, GDP and RET: An aggregate economic equilibrium analysis for Turkey

There is a worldwide interest in renewable electricity technologies (RETs) due to growing concerns about global warming and climate change. As an EU candidate country whose energy demand increases exponentially, Turkey inevitably shares this common interest on RET. This study, using an aggregate economic equilibrium model, explores the economic costs of different policy measures to mitigate CO 2 emissions in Turkey. The model combines energy demands, capital requirements and labor inputs at a constant elasticity of substitution under an economy-wide nested production function. Growing energy demand, triggered by economic growth, is met by increased supply and initiates new capacity additions. Investment into RET is encouraged via the incorporation of (a) endogenous technological learning through which the RET cost declines as a function of cumulative capacity, and (b) a willingness to pay (WTP) function which imposes the WTP of consumers as a lower bound on RET installation. The WTP equation is obtained as a function of consumer income categories, based on data gathered from a pilot survey in which the contingent valuation methodology was employed. The impacts of various emission reduction scenarios on GDP growth and RET diffusion are explored. As expected, RET penetration is accelerated under faster technological learning and higher WTP conditions. It is found that stabilizing CO 2 emissions to year 2005 levels causes economic losses amounting to 17% and 23% of GDP in the years 2020 and 2030, respectively.

Substitution and Complementarity in C. E. S. Models

Since Uzawa's comprehensive analysis of multi-input C.E.S. functions [12], theorists have believed that with C.E.S. technologies inputs can never be complements in the economically important sense that an increase in the price of input i causes the equilibrium employment of any other input j to decrease.' This is correct for non-nested C.E.S. functions; however, it is incorrect if production takes place with nested C.E.S. functions. The main goal of this paper is to show precisely how nested C.E.S. technologies can cause inputs to be complements in the sense noted above. The key to such complementarity is interprocess substitution, as we studied in an earlier paper [2]. Nested technologies of the sort we have in mind are quite common. They occur whenever an intermediate good produced with one sort of capital equipment and labor is processed further by a different type of capital and labor. This entails virtually all of manufacturing. For instance, crude oil is an intermediate good extracted with drill pipe, pump jacks, and separating tanks. It is then refined into its components using high temperature fractionating columns. The two subprocesses, and forms of capital, are distinct: fractionating columns cannot do the work of extraction, nor can drill pipe, pump jacks, and separating tanks help in refining. Although direct, technical substitution of capital in one subprocess for capital in the other is not possible, some substitution between subprocesses is quite feasible. As the price of crude oil increases, it is refined more efficiently. In this specific sense one subprocess, refining, increases relative to the other, intermediate crude oil; hence there is indirect economic substitution of refining inputs for extraction inputs. Nested production functions are clearly the rule for semi-finished goods traded internationally. A country that imports a semi-finished good produced with foreign resources, then refines it further domestically, combines a nesting of foreign and domestic production functions. This is a matter of first-order significance in the U.S. automobile industry; a larger share of the final value of imported cars sold domestically now originates abroad rather than at home. Content protection, the notion that a certain percentage of either a specific physical input or the final cost of a

Flexibly Nested Production Functions: Implementation for MONASH

This paper describes the implementation for the MONASH model of a scheme for flexible nesting of production functions. The scheme supports substitution in production between different commodities and between commodities and primary factors, which the standard ORANI production system does not. Thus it supports more flexible functional forms than standard ORANI. More importantly, this treatment supports not just a single functional form but a wide variety of functional forms, built up by the nesting of CES aggregator functions. The number of CES aggregator functions, their membership, and the depth of nesting are all arbitrary. These features of the nesting structure are now specified not in the theoretical structure in the database. Thus the production structure can readily be modified to meet the special requirements of individual applications. We illustrate the use of the flexible nesting treatment with an application to inter-fuel and energy-capital substitution.

Morishima elasticities of substitution with nested production functions

Nested, multi-stage, production technologies are distinguished by two distinct types of substitution: intraprocess and interprocess. This paper develops Morishima elasticity measures for each, shows the relation between the Morishima and Allen-Uzawa substitution elasticities, and applies the analysis to domestic content protection.