Total Factor Productivity and Relative Prices

In his seminal work, Fontela (1989) established the distributional rule of productivity gain in the input output context (Total Factor Productivity Surplus, TFPS). In 1993, at the end of our PhD period in Geneva, under the supervision of Fontela and Lo Cascio, we proposed an extension to identify a measure of surplus, called Purchasing Power Transfer (PPT). This measure is given by the productivity gains and the market surplus generated by extra-profits conditions derived from rental position detained by agents. Such a decomposition is very useful from our point of view since it would provide information about the degree of non-competitiveness in different markets. In our paper, we summarize the drawbacks of using the double deflation method and we compute and explain Fontela’s TFPS comparing it with Garau’s PPT.