Knowledge, Procedures, and Input–Output Relations

Abstract Modifications and refinements of procedures and designs are ‘where the action is’, but they result in changes in input–output relations as the outcome of successful attempts to achieve effective procedures and designs with certain performances and to change them in the desired directions. In that, first, each organization knows only one or very few of them. Second, even for apparently similar recipes, any two organizations might master them with very different degrees of effectiveness. Heterogeneity across firms is, thus, the rule, even in the presence of identical relative prices. Third, in general, there is at any point in time one or very few best-practice techniques which dominate the others, irrespective of relative prices. Different firms are likely to be characterized by persistently diverse (better and worse) techniques. Fourth, over time the observed aggregate dynamics of technical coefficients in each particular activity is the joint outcome of the process of imitation/diffusion of existing best-practice techniques, of the search for new ones, of the death of some others, and of the changing shares of the firm carrying them over the total. The chapter discusses the formal representation of the (changing) distribution of these techniques, which, for sure, cannot be reduced to standard production functions.