Technology

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Technology
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Technology is a production concept, it means the
representation of the technical knowhow useful
in producing goods. It is embodied in the
production function.
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The one input case.
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The case of a fixed technique.
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The case of variable techniques.
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Output selection
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One look at duality.
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The math of equality of slopes in output
selection.
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The "Optimal Input Selection Rule" MPL
/ w MPK/r for the example of choices
between capital and labor. This is therefore
the standard for allocative efficiency in
production.
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Efficiency and inefficiency. Historical
thoughts Harvey Leibenstein Contending
with the economic model Developments making
the models consistent with inefficiency
a. monitoring, monitoring costs
b. efficiency wage theory c.
satisficing theory
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• Technical inefficiency
• (the same as Leibensteins X-inefficiency
• Definitions a. as a shortfall in output given
• a set of inputs b. as an excess of inputs
  for
• a given output.
• 2. Graphical illustration.
• 3. Two methods of estimation.

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Single input case technical inefficiency.
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Two input case graph.
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Production function with composed error
F(K,L) AK?L?ev-u in logarithms y a ?k
?l v - u here v is N(0,?) and u is
truncated normal.
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Allocative inefficiency depends on equating the
formula fk/r fl/w in graphical form
it is ....
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Applications and limitations 1. Use of mean
inefficiency measures a. compare nonprofits
and for-profits b. compare independents vs.
chains c. pre-merger and post-merger d.
pre-exit e. test labor theories 2. Use of
rankings by inefficiency a. reward firms who
become efficient
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Current Health Economics paper 1. pooled vs.
separated 2. alternative functional forms
a. the translog b. the Cobb-Douglas 3.
alternative measures of the cost of
capital Results a. each sensitivity test finds
the frontier estimates of mean inefficiencies
robust. b. each sensitivity test disturbs the
rankings.
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Historical contributions of technological change
to cost and price inflation Avenues of
influence 1. consumers like the new
technology and buy it. 2. new technology
influences insurance policies to carry
it. Other influences on costs 1.
insurance a. increases demand and b.
influence future technologies. 2. income and
population.
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Goddeeris model insurance can bias tech change
toward the cost-increasing variety
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Summary of Goddeeris effects 1. possible bias
toward cost-increasing technology. 2.
possible result, but not a proven result,
that a new technology will reduce consumer
welfare.
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Burton Weisbrod view of insurance effects 1.
Like Goddeeris speculates, it may increase or
cause a bias toward cost increasing
technologies. 2. Feedback, says Weisbrod, may go
also in the opposite direction ie new
technologies often result in a race among
insurance companies to cover the new
technology.
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Finally Estimates of price changes and
general levels of inflation must be adjusted for
technological change. Difficult because
Tech change often comes in many new elements
as well as previously unknown characteristics.
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Consider the case of heart treatment Examples
of technological change here a. aspirin b.
by-pass surgery c. reduced temperature
surgery d. new surgical techniques e.
machines for maintain circulation f. heart
valves, artificial g. heart transplants
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Cutler et al study, 1999.