Seminar: Bjarne Sloth Jensen, Department of Economics, CBS
Title:
Abstract:
Classical marginalism is related to incremental (marginal, not average) products. Diminishing marginal productivity was first observed in agriculture for labor and extended
to capital. A fundamental problem arose: How much will larger capital inputs increase
the productivity (average products) of labor ? Answers require explicit production functions- von Thünen used two production functions: The analogues of CARA/CRRA utility functions. Explicit CES functions allowed Solow to solve the dynamics of capital accumulation and the evolution of labor productivity. von Thünen’s ’natural wage’ is a CES marginal labor productivity for = 2 - the Solow case of endogenous economic growth. From the beginning until today, calibrations of the cardinal CARA, CRRA and CES production functions were serious problems, as was the actual unit of measurement for capital.