From: Gil Skillman (gskillman@wesleyan.edu)
Date: Wed Mar 12 2003 - 15:37:12 EST
Rakesh writes, among other things: >In fact it's impossible that viable technical change will result in >FROP if one assumes that input=output prices. For what it's worth, that's not true. FROP may also emerge under alternative mechanisms of price determination consistent with the steady-state condition that equates input and output prices. For example, if you abandon the auction-style Walrasian model of equilibrium wage determination for one based on a certain form of sequential matching (more relevant for the analysis of labor markets, if you ask me), then a FROP can be shown to emerge in equilibrium without any differentiation between input and output prices. If interested, see my October 1997 Metroeconomica article demonstrating this. It generalizes and provides a microfoundation for earlier results by Foley and Laibman, who both in effect assume that the wage share of net product is invariant to technical change. Gil
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