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Does Marginal Productivity Mean Anything in Real Economic Life ?

Jael, Paul (2019): Does Marginal Productivity Mean Anything in Real Economic Life ?

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Abstract

The equality between factor pay and marginal product is a major component of the neoclassical paradigm. The paper begins with a brief historical review of this principle. Follows a questioning about the relevance of this law as an argument in the social debates: does marginal product represent the very contribution of the agent and if so, is it a legitimate reference for the setting of remuneration? Our answer to the first part of the question is irresolute; to the second, it is negative.

But most of the article is devoted to analysing the economic realism of the said law, both empirically and theoretically. We review some statistical studies present in the literature, with particular attention for the debate regarding the regressions of Cobb and Douglas. Evidence does not strengthen the neoclassical law of retribution.

The paper analyses the factors that hinder either the determinateness of marginal product or the equalisation between it and factor's remuneration. Are analysed: - the restrictions inherent in the law of marginal productivity: constant returns to scale and perfect competition - an alternative explanation of interest: the Austrian theory - incentive wage theories: efficiency wage and tournament theory.

The article then considers the particular case of the CEO's remuneration.

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