On the estimation of marginal cost
AbstractThis article proposes a general empirical method for the estimation of marginal cost of individual firms. The new method employs the smooth coefficient model, which has a number of appealing features when applied to cost functions. The empirical analysis uses data from a unique sample from which we observe marginal cost. We compare the estimates from the proposed method with the true values of marginal cost, and the estimates of marginal cost that we obtain through conventional parametric methods. We show that the proposed method produces estimated values of marginal cost that very closely approximate the true values of marginal cost. In contrast, the results from conventional parametric methods are significantly biased and provide invalid inference.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 43514.
Date of creation: 01 Dec 2012
Date of revision:
Estimation of marginal cost; Parametric models; Smooth coefficient model; Actual and simulated data;
Find related papers by JEL classification:
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data
- Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-01-12 (All new papers)
- NEP-ECM-2013-01-12 (Econometrics)
- NEP-EFF-2013-01-12 (Efficiency & Productivity)
- NEP-REG-2013-01-12 (Regulation)
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