The Measurement of Productivity and Scarcity Rent: the Case of Asbestos in Canada

In Order to Compute an Index of Total Factor Productivity, It Is Necessary to Know Returns to Scale and Interval Valuations of Quasi-Fixed Factors; Neither Are Directly Observable. in Resource Industries This Problem Is Compounded by the Facts That Returns to Scale Are Important and That There Is No Market Valuation of the Resource Input to Use As a Substitute for Its Internal Valuation. Both Can Be Estimated by Econometric Methods Provided the Underlying Model Is Compatible with the Theory of Technological Change Which Accounts for the Productivity Changes to Be Measured. We Estimate a Form of the Translog Cost Function Which Allows for Both Induced and Exogenous, Biaised Or Neutral, Technological Change, Using Data From the Asbestos Industry in Canada. Then We Exploit the Fact That an Internal Valuation of Quasi-Fixed Factors Is Given by the Negative of the Partial Derivatives of the Cost Function with Respect to the Appropriate Input Quantities. Not Surprinsingly, We Find That the Implicit Rental Price of Asbestos Reserves Has Dropped Sharply After 1975, But Represented a Substancial Share of Total Implicit Costs in Earlier Years. We Also Find That Induced Technological Change Is Important in the Asbestos Sector. the Econometric Productivity Index Which Is Computed on the Basis of Our Estimated Model Sharply Differs From the Divisia Index, As Computed Under the Assumption of Constant Return to Scale and Ignoring the Role of the Resource As an Input.