Productivity - Production Models

Production Models

A production model is a numerical description of the production process and is based on the prices and the quantities of inputs and outputs. There are two main approaches to operationalize the concept productivity. We can use mathematical formulae, which are typically used in macroeconomics (in growth accounting) or arithmetical models, which are typically used in microeconomics and management accounting. We do not present the former approach here but refer to the survey “Growth accounting” by Hulten 2009.

We use here arithmetical models because they are like the models of management accounting, illustrative and easily understood and applied in practice. Furthermore they are integrated to management accounting, which is a practical advantage. A major advantage of the arithmetical model is its capability to depict productivity as a part of production process. Consequently productivity can be understood, measured, and examined as a part of production process.

There are different production models according to different interests. Here we use a production income model, a productivity model and a growth accounting model in order to demonstrate productivity as a phenomenon and a measureable quantity.