Energy Substitution, Production, and Trade in the US

Energy proves an essential input with robust comparative static effects in a factor proportions model of production for the US. Energy has a robust marginal product and significant substitution in a novel production function motivated by the definition of physical work. In this physical production function, energy and labor inputs interact separately with capital. The present data cover the years 1951 to 2008. One version of the model assumes an endogenous price of energy, and another endogenous energy imports at the world price. These comparative static models of production and trade have an array of policy implications.