TY - UNPB

T1 - On the Benefits of Normalization in Production Functions

AU - Embrey, Iain

PY - 2019/1

Y1 - 2019/1

N2 - A growing literature demonstrates that production function normalization yieldsimportant benefits in both empirical and theoretical macroeconomics. Yet normalization has remained notably absent from the microeconomic literature. This paper introduces the concept of normalization within the microeconomic context, and establishes that it could provide substantial improvements in the interpretability, the tractability, and the applicability of a broad class of economic production functions. Since any production function is merely a specialized interpretation of some decision-maker's utility function, our analyses also generalize to the wider context of utility functions. We therefore conclude that the benefits of normalization may be pervasive.

AB - A growing literature demonstrates that production function normalization yieldsimportant benefits in both empirical and theoretical macroeconomics. Yet normalization has remained notably absent from the microeconomic literature. This paper introduces the concept of normalization within the microeconomic context, and establishes that it could provide substantial improvements in the interpretability, the tractability, and the applicability of a broad class of economic production functions. Since any production function is merely a specialized interpretation of some decision-maker's utility function, our analyses also generalize to the wider context of utility functions. We therefore conclude that the benefits of normalization may be pervasive.

KW - Normalization

KW - Production Function

KW - Utility Function

KW - CES Function

M3 - Working paper

T3 - Economics Working Papers Series

BT - On the Benefits of Normalization in Production Functions

PB - Lancaster University, Department of Economics

CY - Lancaster

ER -