Localized competition and the aggregation of plant-level increasing returns: Blast furnaces, 1929-1935

A recent empirical literature has shaken economists' confidence in the value of aggregate (industry-level) data to illuminate production relationships, but the statistical finding "you cannot aggregate" however well documented, is not an economic explanation. Plant-level relationships...

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Bibliographic Details
Published inThe Journal of political economy Vol. 104; no. 2; p. 241
Main Authors Bertin, Amy L, Bresnahan, Timothy F, Raff, Daniel M G
Format Journal Article
LanguageEnglish
Published Chicago University of Chicago, acting through its Press 01.04.1996
Subjects
Competition
Decision making
Economic depression
Economic theory
Economics
Factories
History
Labor force
Political economy
Production factors
Statistical analysis
Studies
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Summary:A recent empirical literature has shaken economists' confidence in the value of aggregate (industry-level) data to illuminate production relationships, but the statistical finding "you cannot aggregate" however well documented, is not an economic explanation. Plant-level relationships do aggregate in Depression-era blast furnace operations despite the presence of very substantial interplant heterogeneity, the most common cause of nonaggregability. The economic explanation of this lies in poor short-run substitutability of one plant's output for another's. Substitutability determines the importance of composition effects in understanding aggregate time series, constrains the potential cleansing effects of recessions, and therefore influences industry evolution quite broadly.
ISSN:0022-3808
1537-534X
DOI:10.1086/262024