Production factor returns: the role of factor utilisation

Abstract

Short-term increasing returns to production factors are usually found in empirical studies. We argue they can be due to omitted variables, particularly the intensity of factor utilisation. Thanks to original French firm-level data (1992-2008), we show how increasing returns to scale disappear when working time, capacity utilisation rate and mainly capital operating time are introduced in the production function.

Gilbert Cette, Nicolas Dromel, Rémy Lecat, and Anne-Charlotte Paret
January 2011

Classification JEL : D22, D24, E22, O40

Keywords : Production function, productivity, factor returns