Calibration of Firms Parameters

Aggregate Production Function and Capital Accumulation

The OG-Core firm theory documentation outlines the constant returns to scale, constant elasticity of substitution production function of the representative firm. This function has two parameters; the elasticity of substitution and capital’s share of output.

Elasticity of substitution

OG-PHL’s default parameterization has an elasticity of substitution of \(\varepsilon=1.0\), which implies a Cobb-Douglas production function.

Capital’s share of output

Here, we use a default value of \(\gamma =0.588\), which comes from national accounts data.