Hansen, Sten (Ministry of Finance, SE-103 33 Stockholm, Sweden) Lindström, Tomas () (National Institute of Economic Research)
Abstract
While using detailed firm-level data from the private business sector, this study identifies two empirical puzzles: (i) returns-to-scale (RTS) parameter estimates rise at higher levels of data aggregation, and (ii) estimates from the firm level suggest decreasing returns to scale. The analysis shows that, although consistent with rising estimates, the Basu-Fernald (1997) aggregation-bias effect does not drive this result. Rather, rising and too low returns-to-scale estimates probably reflect a mixture of random errors in factor inputs. It turns out, in fact, that a 7.5-10 percent error in labor (hours worked) can explain both puzzles.
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Publisher Info
Paper provided by National Institute of Economic Research in its series Working Paper with number
91.
Length: 38 pages Date of creation: 01 May 2004 Date of revision: Handle: RePEc:hhs:nierwp:0091
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Find related papers by JEL classification: D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
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