Convex Supply Curves

We provide evidence that industries’ supply curves are convex. To guide our empirical analysis, we develop a model in which capacity constraints at the firm level generate supply curves that are convex in logs at the industry level. The industry’s capacity utilization rate is a sufficient statistic...

Full description

Saved in:
Bibliographic Details
Published in:The American economic review 2022-12, Vol.112 (12), p.3941-3969
Main Authors: Boehm, Christoph E., Pandalai-Nayar, Nitya
Format: Article
Language:English
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:We provide evidence that industries’ supply curves are convex. To guide our empirical analysis, we develop a model in which capacity constraints at the firm level generate supply curves that are convex in logs at the industry level. The industry’s capacity utilization rate is a sufficient statistic for the supply elasticity. Using data on capacity utilization and three different instruments, we estimate the supply curve and find robust evidence for an economically sizable degree of convexity. The nonlinearity we identify has several macroeconomic implications, including that responses to shocks are state dependent and that the Phillips curve is convex.
ISSN:0002-8282
1944-7981
DOI:10.1257/aer.20210811