The C-D Partition Functions and their Use

V.I.G.MENON*

Abstract All outputs of a nation are categorised into Social,Knowledge,Economic and Physical Capitals and the conventional generalized Cobb-Douglas function is partitioned to arrive at elasticities for each category of such outputs. A term Potential Value Addition due to a category input factor xi for a category output QM is also defined using a Jacobian Matrix i.

* Centre For Excellence,12/403,Anna Nagar West Extension,Chennai,600101

INTRODUCTION By now it is pass that Countries with higher quality government institutions have recorded faster growth in manufactured exports1. And there is a growing realization that it is not just the GDP that decides the welfare or wellbeing of nations, but also the social capital such as the people teamwork such as in Microfinance or in kaizen that affects the nationally significant outcomes.In the following we examine one way of generalizing Capital to cover Social,Intellectual,Economic and Physical Capital by extending the usage of Cobb-Douglas Production functions.

GENERALIING C-D FUNCTIONS TO COVER SOCIAL,INTELLECTUAL AND PHYSICAL CAPITAL We start with a generalized Cobb-Douglas Production functions as used by Charnes2 etal.,as below:
Q = A xji = Ax11 x22x33 .. xj
i=1

i=j

[1]

where A is a constant, xi is the amount of the ith factor input and the constant,i is its corresponding "output elasticity", so that , lnQ Inxi
=

xiQ Qxi

[2]

which is assumed to be positive, as are also all the variables xi ..

Assuming that all outcomes of a nation or a community can be classified into Social, Intellectual, Economic, and Physical (hereby abbreviated as SKEP) value creations (or dissolutions), we generalize the output Q as a product of (measures for) SKEP outcomes or outputs. Examples Of Social Value or Social Capital3 Creations are Culture, Social and Political Cohesion or the lack of it,including corruption.All forms of Intellectual Capital represent the Intellectual Values.GDP is an economic value, while Infrastructure,Physical well being are examples of Physical Values or Physical Capital

Qs QKQEQP = A xji
i=1

i=j

= A x11 x22x33 .. xj

[3]

Assuming that each xi has its own the S,K,E and P contribution ie., xji has i as sum of S,K,E to P elasticities .That is i = Si + Ki + Ei + Pi

[4]

Constant Return to scale4 can be imposed by assuming i =1.

Grouping the S,K,E,P factors in [3] this way, Qs QKQEQP = A xjSi + Ki + Ei + Pi

i=1

i=j

= A x1Si + Ki + Ei + Pi . x1Si + Ki + Ei + Pi

[5]

Regrouping gives us
Qs QKQEQP = [As xiSi ]X [AK xiKi ] X [AE xiEi ] X [AP xiPi ]
i=1 i=1 i=1 i=1

i=j

i=j

i=j

i=j

[6]

Now we partition the output into Qs, QK ,QE and QP by writing [6] as

i=j

Qs

As xi
i=1

Si

[7a]

i=j

QK

AK xi
i=1

Ki

[7b]

i=j

QE

AE xi
i=1

Ei

[7c]

i=j

QP

AP xi
i=1

Pi

[7d]

Thereby assuring that C-D functions can be used for outcomes of a community such as Social,Intellectual and Physical,other than the currently used Economic Outputs.

RATE OF VALUE ADDITION

Representing the CobbDouglas function in [7a] as a linear relationship using the conventional expression: loge(Qs) = 0 +

Si

loge(xMi)

[8]

Where Qs = Social Output, xMi collectively stands for M= S,K,E,or P inputs ,

0 = loge(As) and
S

Mj

(lnQs/In xMj) xMji i = (xMiQs / Qs xMi) xMji

[9]

xMj represent xSi xKi ,xEi and xPi.and xC represents only xKi ,xEi and xPi, the indices i or j indicate the ith or jth input factors and MSj is the elasticities of the Social Outputs with

respect to xSi , xKi,,xEi, and xPi , when xMj are constants except when j.i .

or (SMjQs/xMj)xMji

(Qs / Q xMj) xMji

[10]

Using [11] we define the Potential Social Value of ith factor social outputs as:
S

Xi

on

xMi = ( Qs /xMi) xMji

= (SMjQs/ xMi) xMji

[11]

Obviously we will have four Sxsi values for each of the xMi

Ignoring subscripts xMji

in [12] temporarily,and assuming that only xSi is varying,

xsi

= dQs/dxSi

= SiQs/xSi

[12]

xsi

is thus the rate of social value addition with respect to the Social Cost xSi which

when all other input factors are constants,while

s
xKi

= dQs/dxKi

= SiQs/xKi

[13]

is

the rate of social value addition with respect to Technology/Knowledge cost xKi

A similar analysis gives comparable results for Knowledge,Economic and Physical Outputs, yielding a 4X4 Jacobian5 Matrix of Coefficients for
S XSi XSi S XKi XKi S XEi XEi M XMi

as below.
XPi XPi

i= [

K M XMi

]
E P XSi E XKi XKi E XEi XEi E XPi XPi XSi P P P

[14]

Thus any Social Progress can be looked at as a problem of maximizing6 the norm

of the matrix

i.

CONCLUSIONS

A generalized C-D function that can represent the Social,Knowledge,Economic and Physical (SKEP) Elasticities as ratio of SKEP output to SKEP costs is discussed which helps analyse the factor value addition in any of such SKEP Categories.Finally a Jacobial Matrix i is defined as the National (output) potential for a Given Factor xi Although this approach can potentially address the concern that GDP is not Everything, choosing the right metric in each of the SKEP category at the respective levels could be a daunting task.

REFERENCES

1.RADELET, STEVEN etal., Economic Growth in Asia, http://www.cid.harvard.edu/archive/hiid/papers/ecgasia.pdf

2.CHARNES*, W. W. COOPER AND A. P. SCHINNAR, A theorem on homogeneous functions and extended Cobb-Douglas forms, Proc. Natl. Acad. Sci.

USA,Vol. 73, No. 10, pp. 3747-3748, October 1976

3.Hobbs,Graham, What is Social Capital ? A Brief Literature Overview http://www.caledonia.org.uk/papers/hobbs.pdf 4..Jhingan,M.L, Advanced Economic Theory13th Ed,ISBN-81-8281-165-2,(India:Vrinda Publications (P) LTD, 2009).

5.Kreyzig,Irwin,Advanced Engineering Mathematics, 8thEd, ISBN:978-81-265-0827-3(Ch9 India:john Wiley & Sons,Inc,Reprint 2009) 6.Baumol,William J,Economic Theory and Operations Analysis,4th Ed,ISBN-81-203-0141-2, (India:Ch 4,11, Prentice-Hall Private Limited, 1977).