The Inada conditions for material resource inputs reconsidered

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It is shown that the thermodynamic law of conservation of mass, the so-called Materials-Balance-Principle, implies that the marginal product as well as the average product of a material resource input are bounded from above. This means that the Inada conditions, one of the standard assumptions of economic growth theory, when applied to material resource inputs are inconsistent with a basic law of nature. The analysis is based on a model of multi-level production where intermediate goods are produced from elementary resources, and an all-purpose final commodity is produced from these intermediates.

Original languageEnglish
JournalEnvironmental and Resource Economics
Issue number3
Pages (from-to)307-322
Number of pages16
Publication statusPublished - 11.2004
Externally publishedYes