On the empirical validity of production theory

The paper shows that major parts of production theory are purely conceptual and have only a limited empirical meaning. To amend these shortcomings, an extension of production and cost theory is proposed based on the theory of distributed decision making. Illustrated with a simple production planning model, a two-stage procedure is shown to be appropriate to incorporate the necessary information transposing production theory to become empirical. Claiming rationality an optimal aggregation–disaggregation procedure is necessary showing that extending the conceptual theory to an empirical one is subject to normative considerations.