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On Input Market Frictions and Estimation of Factors’ Demand

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  • 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.

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File URL: http://web2.msm.nl/RePEc/msm/wpaper/MSM-WP2012-11.pdf
File Function: First version, 2012
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Bibliographic Info

Paper provided by Maastricht School of Management in its series Working Papers with number 2012/11.

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Length: 14 pages
Date of creation: Mar 2012
Date of revision:
Handle: RePEc:msm:wpaper:2012/11

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Keywords: Input Market Frictions; Labor Market Frictions; Estimation of Factor Demand;

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  1. George J. Borjas, 2003. "The Labor Demand Curve is Downward Sloping: Reexamining the Impact of Immigration on the Labor Market," NBER Working Papers 9755, National Bureau of Economic Research, Inc.
  2. David Card, 2009. "Immigration and Inequality," American Economic Review, American Economic Association, vol. 99(2), pages 1-21, May.
  3. David Card & Christian Dustmann & Ian Preston, 2009. "Immigration, Wages, and Compositional Amenities," NBER Working Papers 15521, National Bureau of Economic Research, Inc.
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  7. Simona Lup TICK & Ronald L. OAXACA, 2010. "Technological Change and Gender Wage Gaps in the U.S. Service Industry," Annales d'Economie et de Statistique, ENSAE, issue 99-100, pages 47-65.
  8. Katz, L.F. & Murphy, K.M., 1991. "Changes in Relative Wages, 1963-1987: Supply and Demand Factors," Harvard Institute of Economic Research Working Papers 1580, Harvard - Institute of Economic Research.
  9. Julie L. Hotchkiss & Myriam Quispe-Agnoli, 2009. "Employer monopsony power in the labor market for undocumented workers," Working Paper 2009-14, Federal Reserve Bank of Atlanta.
  10. Boris Hirsch & Thorsten Schank & Claus Schnabel, 2008. "Differences in Labor Supply to Monopsonistic Firms and the Gender Pay Gap: An Empirical Analysis Using Linked Employer-Employee Data from Germany," Working Papers 1111, Princeton University, Department of Economics, Industrial Relations Section..
  11. Torberg Falch, 2008. "The elasticity of labor supply at the establishment level," Working Papers 1106, Princeton University, Department of Economics, Industrial Relations Section..
  12. David Card & Thomas Lemieux, 2001. "Can Falling Supply Explain The Rising Return To College For Younger Men? A Cohort-Based Analysis," The Quarterly Journal of Economics, MIT Press, vol. 116(2), pages 705-746, May.
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