Production Theory: Accounting for Firm Heterogeneity and Technical Change

Marco Grazzi (University of Bologna and University of Cambridge)

The paper presents a new framework to assess firm level heterogeneity and to study the rate and direction of technical change.

Building on the analysis of revealed short-run production functions by Hildenbrand (1981), we propose the (normalized) volume of the zonotope composed by vectors-firms in a narrowly defined industry as an indicator of inter-firm heterogeneity. Moreover, the angles that the main diagonal of the zonotope form with the axes provide a measure of the rates and directions of productivity change over time. The proposed framework also accounts for n-inputs and m-outputs and, crucially, the measures of heterogeneity and technical change do not require many of the standard assumptions from production theory.

Speaker biography
Marco Grazzi is assistant professor at the University of Bologna, Department of Economics and he is now visiting the Center for Business Research at the University of Cambridge. He earned his PhD at the Scuola Superiore Sant'Anna in Pisa and he has published his works in several journals (up to date list here).

His research focuses on the role of firms in shaping aggregate industry and country dynamics. To this end, his works embrace a number of fields such as international trade, firm growth and its relation to innovation, and the analysis of production, both from a theoretical and empirical point of view.