Staff Report 325

Back to Publication

A Theory of Factor Allocation and Plant Size

Thomas J. Holmes - Consultant
Matthew F. Mitchell

Published October 1, 2003

Abstract
In this paper we develop a theory of how factors interact at the plant level. The theory has implications for (1) the micro foundations for capital-skill complementarity, (2) the relationship between factor allocation and plant size, and (3) the effects of trade and growth on the skill premium. The theory is consistent with certain facts about factor allocation and factor price changes in the 19th and 20th centuries.


Published In: RAND Journal of Economics (Vol. 39, No. 2, Summer 2008, pp. 329-351)

Download Paper (PDF)