Econometrica: Mar, 1973, Volume 41, Issue 2

Technology Diffusion, Substitution, and X-Efficiency

https://doi.org/0012-9682(197303)41:2<263:TDSAX>2.0.CO;2-K
p. 263-284

T. Y. Shen

This paper examines the possible explanations for the changes in output, capital, and labor input of a sample of manufacturing plants over a number of years. Apart from the scale of operation, these changes could be attributed to three causes: technology diffusion, substitution, and improvements in X-efficiency. The empirical findings indicate that a diffusion model modified to incorporate X-efficiency improvements provides the best explanation. This suggests the need for a new approach to the specification of production functions.