Testing for production with complementarities

Working paper

Suppose we observe a finite number of input decisions made by a firm, as well as the prices at which those inputs were acquired. What conditions on the set of observations are necessary and sufficient for it to be consistent with a firm choosing inputs to maximize profit, subject to a production function exhibiting production complementarities? In this paper, we develop an axiomatic characterisation of this hypothesis and also develop a test that can be easily applied to finite data sets.

Authors: Dziewulski, P; Quah, J

• Publication status: Published
• Publisher: University of Oxford
• Series: Department of Economics Discussion Paper Series
• Publication date: 2014-09-10
• Paper number: 722
• Keywords: cyclical monotonicity; profit maximisation; modern manufacturing; production complementarities; supermodular production; quasilinear preferences