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On Input Market Frictions and Estimation of Factors’ Demand

Author

Listed:
  • Arnaud Dupuy

    (ROA and Department of Economics, Maastricht University)

  • Todd Sorense

    (Department of Economics, University of California, Riverside. todd.sorensen@ucr.edu. 4128 Sproul Hall, 900 University Ave. Riverside, CA 92521)

Abstract

In this paper we explore the impact of imperfectly competitive input markets on production function estimation. First order pro t maximizing conditions are altered when frictions in input markets cause the elasticity of input supply to the rm to be nite. A consequence of this is that the standard econometric model used for production function estimation will be misspeci ed. We prove that, in all non trivial cases, nite elasticities of supply to the rm will lead to inconsistent estimates of production function parameters. Monte Carlo simulations show that the resulting bias can be economically signi cant.

Suggested Citation

  • Arnaud Dupuy & Todd Sorense, 2012. "On Input Market Frictions and Estimation of Factors’ Demand," Working Papers 2012/11, Maastricht School of Management.
  • Handle: RePEc:msm:wpaper:2012/11
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Input Market Frictions; Labor Market Frictions; Estimation of Factor Demand;
    All these keywords.

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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