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arXiv · 2309.15760

Linearity, Geometry, and Substitution in Aggregate Production

Christopher P. Chambers·Alexis Akira Toda
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Abstract

We study aggregate production under efficient input allocation across heterogeneous production units. With constant returns to scale, every profit-maximizing allocation generates a cone on which the aggregate production function is linear, whose dimension is the rank of active units' input vectors. Under concavity, the maximal cone at a supporting price is generated by component-technology contact sets. Higher-dimensional cones exist exactly when the pointwise maximum of strictly concave component technologies is nonconcave on the unit simplex. As an application, coexistence of land-using and land-free activities implies infinite aggregate elasticity of substitution at sufficiently high nonland-to-land ratios.

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Christopher P. Chambers, Alexis Akira Toda. 2023-09-27. Linearity, Geometry, and Substitution in Aggregate Production. https://arxiv.org/abs/2309.15760

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