Progress through Regression: The Life Story of the Empirical Cobb-Douglas Production Function (Historical Perspectives on Modern Economics)

The Cobb-Douglas regression, a statistical technique developed to estimate what economists called a 'production function', was introduced in the late 1920s. For several years, only economist Paul Douglas and a few collaborators used the technique, while vigorously defending it against numerous critics. By the 1950s, however, several economists beyond Douglas's circle were using the technique, and by the 1970s, Douglas's regression, and more sophisticated procedures inspired by it, had become standard parts of the empirical economist's toolkit. This volume is the story of the Cobb-Douglas regression from its introduction to its acceptance as general-purpose research tool. The story intersects with the histories of several important empirical research programs in twentieth century economics, and vividly portrays the challenges of empirical economic research during that era. Fundamentally, this work represents a case study of how a controversial, innovative research tool comes to be widely accepted by a community of scholars. "At the 1927 meetings of the American Economic Association, Paul Douglas presented a paper entitled "A Theory of Production", which he had coauthored with Charles Cobb. The paper proposed the now familiar Cobb-Douglas function as a general mathematical representation of the relationship between the amounts of capital and labor employed in the US manufacturing sector and the quantity of output produced by that sector. The paper's innovation, however, was not the function itself, as this functional form had been previously proposed by Knut Wicksell and others; but the use of the function as the basis of a statistical procedure for estimating the parameters of this relationship. It is this procedure, a linear regression of the log of a measure of the output of some production activity on the logs of measures of inputs used in the activity, that I call in this book "the Cobb-Douglas regression". In a broader sense, the paper's innovation was the idea motivating and underlying the particular linear regression used by Cobb and Douglas: that a stable, quantifiable relationship between the inputs to and outputs of production processes existed and could be discovered through regression analysis, and that knowledge of this relationship would help to answer important questions of economic theory and policy"-- Provided by publisher