Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/107351
Authors: 
Irmen, Andreas
Maussner, Alfred
Year of Publication: 
2014
Series/Report no.: 
CESifo Working Paper 5126
Abstract: 
The Inada (1963) conditions constitute a defining property of the neoclassical production function with capital and labor as arguments. Are these conditions justifiable on economic grounds? Yes, they are: we show that a production function with positive, yet diminishing marginal products and constant returns to scale satisfies the Inada conditions if i) both inputs are essential and ii) an unbounded quantity of either input leads to unbounded output. This allows for an alternative characterization of the neoclassical production function that altogether dispenses with the Inada conditions. Moreover, we establish that the marginal product of capital vanishes as capital goes to infinity if labor is an essential input. Given the intuitive appeal of the latter feature, we conclude that the neoclassical growth model is a theory of eventual stagnation.
Subjects: 
neoclassical growth model
capital accumulation
stagnation
Inada conditions
JEL: 
E10
O10
O40
Document Type: 
Working Paper

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