The Capital-Energy Substitutability Debate: A New Look

Thompson, Peter; Taylor, Timothy

doi:10.2307/2109916

Cited by 131 publications

(66 citation statements)

References 10 publications

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“…High-skilled labor cannot be substituted with any other input, and is complementary to unskilled labor. For all specifications considered, capital and energy are substitutes: a similar result is found in most previous studies for the US and Canada (see Thompson and Taylor, 1995). For some models, there is evidence for capital-skill complementarity, but this result is not robust with respect to the choice of functional form and does not hold in our preferred specification.…”

Section: Cross-price Elasticitiessupporting

confidence: 82%

Imposing and Testing Curvature Conditions on a Box–Cox Cost Function

Koebel¹,

Falk²,

Laisney³

2003

Journal of Business & Economic Statistics

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Die Discussion Papers dienen einer möglichst schnellen Verbreitung von neueren Forschungsarbeiten des ZEW. Die Beiträge liegen in alleiniger Verantwortung der Autoren und stellen nicht notwendigerweise die Meinung des ZEW dar.Discussion Papers are intended to make results of ZEW research promptly available to other economists in order to encourage discussion and suggestions for revisions. The authors are solely responsible for the contents which do not necessarily represent the opinion of the ZEW.Download this ZEW Discussion Papers from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp0070.pdf Abstract. We present a new method for imposing and testing concavity of a cost function using asymptotic least squares, which can easily be implemented even for cost functions which are nonlinear in parameters. We provide an illustration on the basis of a (generalized) Box-Cox cost function with six inputs: capital, labor disaggregated in three skill levels, energy, and intermediate materials. A parametric test of the concavity of the cost function in prices is presented, and price elasticities are compared when curvature conditions are imposed and when they are not. The results show that, although concavity is statistically rejected, the estimates are not very sensitive to its imposition. We find that substitution is stronger between the different types of labor than between any other pair of inputs.

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Section: Cross-price Elasticitiessupporting

confidence: 82%

Imposing and Testing Curvature Conditions on a Box–Cox Cost Function

Koebel¹,

Falk²,

Laisney³

2003

Journal of Business & Economic Statistics

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“…Apart from this elasticity, neither the PEC nor the MEC show a large degree of asymmetry, which is similar to Thompson and Taylor's (1995) results for the MES. Again the Pigou EC should also show less q-complementarity than the MEC.…”

Section: Numerical Analysissupporting

confidence: 82%

“…The asymmetric dual elasticities (MES and FRES) indicate a relation of net p-substitution and gross pcomplementarity. Thompson and Taylor (1995) report almost equal Morishima elasticities of 0.31 and 0.32 for capital and energy, which are mid-way between the two estimates that I find.…”

Section: Numerical Analysissupporting

confidence: 58%

Elasticities of substitution and complementarity

Stern

2010

J Prod Anal

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“…The capital-energy substitutability is likely to differ from one sector to another. In contrast to a number of papers estimating the elasticity of substitution between capital and energy on a highly disaggregate level (see Thompson and Taylor, 1995, and the literature quoted therein), industry as a whole and transportation are considered here because, on the one hand, the two sectors are sufficiently broad to satisfy the ultimately macroeconomic interest of the analysis and, on the other hand, they may be good examples for the scope and diversity of sectoral supply-side responses to the oil price hikes of the 1970s and the recent past.…”

mentioning

confidence: 95%

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

Knetsch

Molzahn

2011

Empir Econ

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The paper 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. While industry had suffered more strongly from the oil price shock of the late 1970s compared with the one of the early 1970s and the 2004-08 upsurge, evidence is reverse for transportation. Regarding the impact on the income distribution, both sectors share the pattern that in the recent episode rising energy costs were more than compensated by falling unit labor costs while in the 1970s cost structures had been strained by expansive wage policy in addition to the oil price shocks. Keywords: energy prices, supply of goods and services, income distribution.JEL classification: E23, E25, Q43. Non-echnical ummaryOil prices rose strongly in the period between 2004 and 2008. In this paper, we analyze how firms have reacted to this shock in the short run, as regards the supply of goods and services and/or output prices. The focus is on industry and transportation, as these sectors possess the highest shares in corporate energy consumption. In addition, the effects are compared with those of the two oil price shocks during the 1970s. (Since a partial-equilibrium analysis is adopted here, we do not need to distinguish whether oil price movements are driven by demand-side or supply-side factors.)In a first step, the short-run effect of an energy price hike on the supply of industrial goods and transport services is calculated on the basis of a theoretical model. In this setup, we assume that the output good is produced by three factors of production, namely capital, labor and energy. Firms react to energy price changes by adjusting the use of energy, labour input and, as a consequence, the volume of output. (In the short run, however, the capital stock is fixed and, for simplification, output prices are constant and money wages are settled.) The implications of the theoretical model are used to structure the empirical analysis. In particular, it is shown that the elasticity of substitution between capital and energy is central to the strength of the output response. Hence, the empirical analysis pays special attention to the estimation of this parameter.Contrary to the assumption imposed in theory, strong and lasting energy price surges cause firms to adjust output prices even in the short run. It is therefore more realistic to compute the output response on the basis of the increase in the effective energy price relative to the change in the output price. In order to obtain a comprehensive view of firms' reactions in such circumstances, the output price change is studied as well. In particular, it is decomposed into the contributions of the changes in the unit costs of factor inputs.The empirical analysis shows that industrial production was more severely affected by the oil price shock of the late 1970s than by those of the early 1970s and of the period between 2004 and 2008. By contrast, transport services were dampened more in th...

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The Capital-Energy Substitutability Debate: A New Look

Cited by 131 publications

References 10 publications

Imposing and Testing Curvature Conditions on a Box–Cox Cost Function

Imposing and Testing Curvature Conditions on a Box–Cox Cost Function

Elasticities of substitution and complementarity

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

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