The Engineering Approach to Economic Production Functions Revisited: An Application to Solar Processes

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Despite the renewed and increasing interest in substituting solar produced energy for conventional nonrenewable resources, very little of general interest has been done in the way of empirically characterizing technological substitution possibilities via economic production functions. The absence of econometric approximations can be attributed to the lack of adequate statistical data. On the other hand, we have largely ignored the possibility of deriving meaningful production functions from physical laws and engineering models. The idea of deriving economically useful production functions from engineering data is an intriguing one albeit not new. Chenery's seminal work [I 949, I953] and later extensions by Ferguson [I950], Grosse [I953], Smith [I957, I959, I96I], and Cowing [I974], among others, evidence the successfulness of the general approach in a wide variety of applications. Moreover, the recent literature has witnessed a resurgence of interest in the use of engineering models via Hoffman and Jorgenson [I977], Hausman [I979], and Griffin [I972, I977(a), I977 (b), I978, I979].

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