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Correcting for biases when estimating production functions: an illusion of the laws of algebra?

  • Jesus Felipe
  • Rana Hasan
  • J. S. L. McCombie

this paper argues that the true cause of the endogeneity bias that allegedly appears when estimating production functions, and which the literature has tried to deal with since the 1940s, is s imply the result of omitted-variable bias due to an incorrect approximation to an accounting identity. As a result we question recent attempts to solve the problem by developing new estimators.

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Article provided by Oxford University Press in its journal Cambridge Journal of Economics.

Volume (Year): 32 (2008)
Issue (Month): 3 (May)
Pages: 441-459

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Handle: RePEc:oup:cambje:v:32:y:2008:i:3:p:441-459
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  1. Simon, Herbert A., 1978. "Rational Decision-Making in Business Organizations," Nobel Prize in Economics documents 1978-1, Nobel Prize Committee.
  2. Samuelson, Paul A, 1979. "Paul Douglas's Measurement of Production Functions and Marginal Productivities," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 923-39, October.
  3. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," Review of Economic Studies, Wiley Blackwell, vol. 70(2), pages 317-341, 04.
  4. Wibe, Soren A, 1984. "Engineering Production Functions: A Survey," Economica, London School of Economics and Political Science, vol. 51(204), pages 401-11, November.
  5. Shaikh, Anwar, 1974. "Laws of Production and Laws of Algebra: The Humbug Production Function," The Review of Economics and Statistics, MIT Press, vol. 56(1), pages 115-20, February.
  6. Haijime Katayama & Shihua Lu & James Tybout, 2003. "Why Plant-Level Productivity Studies are Often Misleading, and an Alternative Approach to Interference," NBER Working Papers 9617, National Bureau of Economic Research, Inc.
  7. Simon, Herbert A, 1979. " On Parsimonious Explanations of Production Relations," Scandinavian Journal of Economics, Wiley Blackwell, vol. 81(4), pages 459-74.
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