Nadiri, M. Ishaq and Schankerman, Mark (1980) Variable cost functions and the rate of return to quasi-fixed factors: an application to r and d in the Bell system. 597. National Bureau of Economic Research, Cambridge, MA., USA.
Abstract
We formulate a variable cost function model in which certain inputs are treated as quasi-fixed, and develop a simple statistical test of whether optimization occurs for the quasi-fixed inputs. It is shown how to retrieve characteristics of the long-run cost function from the variable cost parameters, with specific reference to the cost elasticity and the elasticities of substitution. We also present a model of the I returns to R & D in the context of a regulated firm and show how to I estimate the net rate of return to R & D from the variable cost function. A translog version of the model is estimated for the Bell System for the period 1947-1976. The empirical results suggest substantial long-run economies of scale at the aggregate level. The formal envelope test indicates that the Bell System's use of capital and R & D was cost- minimizing during the post-war period, but the conclusion is seriously qualified by evidence that the power of the test in this application is low. Finally, we estimate the net rate of return to R & D in the Bell System in the range of 25-40 percent, which is somewhat higher than available estimates for manufacturing industries.
| Item Type: | Monograph (Working Paper) |
|---|---|
| Official URL: | http://www.nber.org |
| Additional Information: | © 1980 M.Ishaq Nadiri and Mark Schankerman |
| Library of Congress subject classification: | H Social Sciences > HB Economic Theory |
| Sets: | Collections > Economists Online Departments > Economics Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD) |
| Identification Number: | 597 |
| Date Deposited: | 28 May 2008 09:55 |
| URL: | http://eprints.lse.ac.uk/5111/ |
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