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Entropy 2018, 20(3), 156; https://doi.org/10.3390/e20030156

A Quantal Response Statistical Equilibrium Model of Induced Technical Change in an Interactive Factor Market: Firm-Level Evidence in the EU Economies

Department of Economics, The New School for Social Research, 6 E 16th Street, New York, NY 10003, USA
Current affiliation: Oxford Martin School, University of Oxford, 34 Broad St, Oxford OX1 3BD, UK.
Received: 7 December 2017 / Revised: 15 January 2018 / Accepted: 18 January 2018 / Published: 28 February 2018
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Abstract

This paper studies the pattern of technical change at the firm level by applying and extending the Quantal Response Statistical Equilibrium model (QRSE). The model assumes that a large number of cost minimizing firms decide whether to adopt a new technology based on the potential rate of cost reduction. The firm in the model is assumed to have a limited capacity to process market signals so there is a positive degree of uncertainty in adopting a new technology. The adoption decision by the firm, in turn, makes an impact on the whole market through changes in the factor-price ratio. The equilibrium distribution of the model is a unimodal probability distribution with four parameters, which is qualitatively different from the Walrasian notion of equilibrium in so far as the state of equilibrium is not a single state but a probability distribution of multiple states. This paper applies Bayesian inference to estimate the unknown parameters of the model using the firm-level data of seven advanced OECD countries over eight years and shows that the mentioned equilibrium distribution from the model can satisfactorily recover the observed pattern of technical change. View Full-Text
Keywords: induced technical change; statistical equilibrium; bounded rationality; cost minimizing behavior; quantal response; factor price induced technical change; statistical equilibrium; bounded rationality; cost minimizing behavior; quantal response; factor price
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Yang, J. A Quantal Response Statistical Equilibrium Model of Induced Technical Change in an Interactive Factor Market: Firm-Level Evidence in the EU Economies. Entropy 2018, 20, 156.

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