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A Variance Component Approach To Industry Cost Analysis

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  • Kilmer, Richard L.
  • Tilley, Daniel S.

Abstract

Cost and volume data used in long-run cost studies often are observations from a single cross-section on firms or the average of multiple observations for each firm [1, 3, 5]. Averaging costs and volume over a time series is designed to eliminate the effect of short-run disturbances on the estimated long-run cost function. This practice results in a loss of information on the cost effects of short-run disturbances and significantly reduces the potential degrees of freedom that could result from pooling cross-sectional time-series data. In order to pool data, binary variables for each firm previously have been used to account for short-run fixed firm effects [4].

Suggested Citation

  • Kilmer, Richard L. & Tilley, Daniel S., 1979. "A Variance Component Approach To Industry Cost Analysis," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 11(2), pages 35-40, December.
    • Handle: RePEc:cup:jagaec:v:11:y:1979:i:02:p:35-40_01
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    1. Kilmer, Richard L. & Spreen, Thomas H., 1983. "Indian River Citrus Peackinghouses and the Southward Movement of Production," Economic Information Report 237422, University of Florida, Food and Resource Economics Department.

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