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Using price and demand information to identify production functions

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  • Jaumandreu, Jordi
  • Mairesse, Jacques

Abstract

This paper explores the use of information on the firm-level prices of the produced output and employed inputs, as well as on the firm-level demand relationship, to identify the parameters of the production function. By considering the system of equations which includes the demands for variable inputs, the demand for the product of the firm and the pricing rule, both the production function and the cost equation can be rewritten in terms of fixed inputs and exogenous determinants (semi-reduced forms). Consistent estimation of this two equation system is possible under no especial distri-bution assumptions on unobserved e fficiency and, in addition, an estimate of the price elasticity of demand is recovered.

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File URL: http://mpra.ub.uni-muenchen.de/1247/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 1247.

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Date of creation: 2006
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Handle: RePEc:pra:mprapa:1247

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Related research

Keywords: production function; demand relationship; reduced form; equation system;

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References

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  1. Z, Griliches & Jacques Mairesse, 1997. "Production Functions : The Search for Identification," Working Papers 97-30, Centre de Recherche en Economie et Statistique.
  2. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-97, November.
  3. Carmine Ornaghi, 2006. "Assessing the effects of measurement errors on the estimation of production functions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(6), pages 879-891.
  4. Richard Blundell & Steve Bond, 1999. "GMM estimation with persistent panel data: an application to production functions," IFS Working Papers W99/04, Institute for Fiscal Studies.
  5. Zvi Griliches & Jacques Mairesse, 1981. "Productivity and R and D at the Firm Level," NBER Working Papers 0826, National Bureau of Economic Research, Inc.
  6. Ackerberg, Daniel & Lanier Benkard, C. & Berry, Steven & Pakes, Ariel, 2007. "Econometric Tools for Analyzing Market Outcomes," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 63 Elsevier.
  7. Jacques Mairesse & Jordi Jaumandreu, 2005. "Panel-data Estimates of the Production Function and the Revenue Function: What Difference Does It Make?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(4), pages 651-672, December.
  8. Guido Fioretti, 2005. "The Production Function," Papers physics/0511191, arXiv.org.
  9. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
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Cited by:
  1. Aida Caldera, 2010. "Innovation and exporting: evidence from Spanish manufacturing firms," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 146(4), pages 657-689, December.
  2. Doraszelski, Ulrich & Jaumandreu, Jordi, 2008. "R&D and Productivity: Estimating Production Functions when Productivity is Endogenous," CEPR Discussion Papers 6636, C.E.P.R. Discussion Papers.

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