Facing the Truth about Separability: Nothing Works Without Energy
Separability is a pivotal theoretical and empirical concept in production theory. While the standard definition of separabilityis primarily motivated by the desire to conceptualize production decisions as a sequential process, the principal purpose of anappropriate concept of separability in empirical work is to justify the omission of variables for which data are either of poorquality or unavailable. This paper demonstrates that this empirical concept needs to be more restrictive than the classical notionof separability is. Therefore, we suggest a novel definition of separability based on cross-price elasticities that has clearempirical content. Because there is ample empirical reason to even doubt the assumption that energy is separable from all otherproduction factors in the relatively mild form of classical separability, energy seems to be an indispensable production factorunder separability aspects.
Frondel, M. and C. Schmidt (2004), Facing the Truth about Separability: Nothing Works Without Energy. Ecological Economics, 51, 3-4, 217-223