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An investigation of issues relating to where energy should enter the production function

Swales, John and Lecca, Patrizio and Turner, Karen (2011) An investigation of issues relating to where energy should enter the production function. Economic Modelling, 28 (6). pp. 2832-2841. ISSN 0264-9993

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Abstract

This paper examines the impact of imposing different separability assumptions in the specifications of the standard hierarchical KLEM production function in a computable general equilibrium (CGE) model. The appropriate means of introducing energy to production functions has been a source of debate for a number of years. However, while modellers often subject results to parametric sensitivy analysis regarding the values associated with elasticities of substitution between inputs, it is rarely the case that the structure of the production function is subjected to testing. However, the chosen structure reflects the modeller's view about elasticity between different inputs and will have implications for model results wherever there are changes in relative prices. We illustrate our argument by introducing a simple demand shock to a CGE model of the Scottish economy (targeted at the energy supply sector) under different assumptions regarding the structure of the KLEM production function and separability assumptions therein.

Item type: Article
ID code: 36149
Keywords: energy industry, production economics, Economic Theory, Economics and Econometrics
Subjects: Social Sciences > Economic Theory
Department: Strathclyde Business School > Economics
Related URLs:
Depositing user: Pure Administrator
Date Deposited: 29 Nov 2011 11:48
Last modified: 05 Sep 2014 14:00
URI: http://strathprints.strath.ac.uk/id/eprint/36149

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