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On the estimation of marginal cost

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  • Delis, Manthos D
  • Iosifidi, Maria
  • Tsionas, Efthymios

Abstract

This 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 Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 43514.

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Date of creation: 01 Dec 2012
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Handle: RePEc:pra:mprapa:43514

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Keywords: Estimation of marginal cost; Parametric models; Smooth coefficient model; Actual and simulated data;

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Cited by:
  1. Delis, Manthos D & Kokas, Sotiris, 2014. "Foreign ownership and market power in banking: Evidence from a world sample," MPRA Paper 53957, University Library of Munich, Germany.
  2. Brissimis, Sophocles & Delis, Mannthos & Iosifidi, Maria, 2012. "Bank market power and monetary policy transmission," MPRA Paper 49206, University Library of Munich, Germany.

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