Equilibrium Specification and Structure of Technology : A Factor Substitution Analysis in French Industrial Demand of Energy

In this paper I concern the problem of properly specifying the structure of technology of French manufacturing industry, when capital is treated as quasi-fixed input. However instead of choosing a single functional form as an approximation to the variable cost function, modified versions of three commonly used flexible functional forms are estimated: (i) the Translog, (ii) the Generalized Leontief and (iii) the Symmetric Generalized McFadden. While maintaining the same data set and the same assumptions about technology, an empirical comparison of alternative flexible models is attempted.A specification test is proposed and conducted to assess the adequacy of the full equilibrium model and find that the long run equilibrium hypothesis is rejected for all three branches.A theoretical framework is then developed which allows for derivation and estimation of long run elasticities, capacity utilization and their derivatives in situations where full static equilibrium is not a tenable assumption. This original method holds for either single or multiple fixed input models. Furthermore, the derivatives of long run elasticities with respect to energy price (proposed here) give insights on the evolution of technological parameters in response to fluctuations of energy prices.The issues analyzed in this paper are not merely of theoretical interest, but are also of practical concern