TITLE:
A Note on Factor Prices and Technical Progress
AUTHORS:
Carl-Gustav Melén
KEYWORDS:
Factor Prices, Factor Intensity, Factor Productivity, Technical Progress, Optimal Lifetime
JOURNAL NAME:
Technology and Investment,
Vol.2 No.3,
August
25,
2011
ABSTRACT: Changes in the factor prices have important impacts on characteristics of investments, such as the expected lifetime, the factor intensity and the factor productivity of new capital goods. Considering both changes in factor prices as well as technical progress, different effects arise at either high substitutability or low substitutability in production. It can be shown that for a production function close to the Cobb-Douglas case, higher interest rates and technical progress will decrease the expected lifetime, the capital intensity and productivity, while the reversed outcome occurs at lower substitutability between factor inputs.