The First KCG Lunch-Time Seminar of 2020 will Take Place on January 17
The Cobb-Douglas production function is one of the functional forms widely used in the fields of economics and econometrics to describe the quantitative relationship between production factors and outputs. Although it is widely applied in the economic and econometric research, there has been criticism since its introduction for its weak foundation and its insufficient link to the real production processes. Focusing on discussing the relevance and caveats of the Cobb-Douglas production function for research, Prof. Tomas Havranek, Ph.D. (Charles University, Prague) will give the first KCG Lunch-Time seminar of 2020 on January 17. The abstract of the presentation titled “Death to the Cobb-Douglas Production Function” is as follows.
Abstract: We show that the large elasticity of substitution between capital and labour estimated in the literature on average, 0.9, can be explained by three factors: publication bias, use of aggregated data, and omission of the first-order condition for capital. The mean elasticity conditional on the absence of publication bias, disaggregated data, and inclusion of information from the first-order condition for capital is 0.3. To obtain this result, we collect 3,186 estimates of the elasticity reported in 121 studies, codify 71 variables that reflect the context in which researchers produce their estimates, and address model uncertainty by Bayesian and frequentist model averaging. We employ nonlinear techniques to correct for publication bias, which is responsible for at least half of the overall reduction in the mean elasticity from 0.9 to 0.3. The weight of evidence accumulated in the empirical literature emphatically rejects the Cobb-Douglas specification.
The seminar will take place at 12:00 on January 17, 2020 in the Medienraum (A211) the Kiel Institute for the World Economy (Kiellinie 66, 24105 Kiel, Germany). More information about the KCG Lunch-Time Seminar can be found here.