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Efficient Estimates Of A Model Of Production And Cost

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  • Paris, Quirino
  • Caputo, Michael R.

Abstract

In 1944, Marschak and Andrews published a seminal paper on how to obtain consistent estimates of a production technology. The original formulation of the econometric model regarded the joint estimation of the production function together with the first-order necessary conditions for profit-maximizing behavior. In the seventies, with the advent of econometric duality, the preference seemed to have shifted to a dual approach. Recently, however, Mundlak resurrected the primal-versus-dual debate with a provocative paper titled "Production Function Estimation: Reviving the Primal." In that paper, the author asserts that the dual estimator, unlike the primal approach, is not efficient because it fails to utilize all the available information. In this paper we demonstrate that efficient estimates of the production technology can be obtained only by jointly estimating all the relevant primal and dual relations. Thus, the primal approach of Mundlak and the dual approach of McElroy become nested special cases of the general specification. In the process of putting to rest the primal-versus-dual debate, we solve also the nonlinear errors-in-variables problem when all the variables are measured with error.

Suggested Citation

  • Paris, Quirino & Caputo, Michael R., 2004. "Efficient Estimates Of A Model Of Production And Cost," 2004 Annual meeting, August 1-4, Denver, CO 20358, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  • Handle: RePEc:ags:aaea04:20358
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    References listed on IDEAS

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    1. repec:cor:louvrp:-12 is not listed on IDEAS
    2. Zellner, Arnold, 1970. "Estimation of Regression Relationships Containing Unobservable Independent Variables," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 11(3), pages 441-454, October.
    3. Schmidt, Peter, 1988. "Estimation of a fixed-effect Cobb-Douglas system using panel data," Journal of Econometrics, Elsevier, vol. 37(3), pages 361-380, March.
    4. ZELLNER, Arnold & KMENTA, Jan & DREZE, Jacques H., 1966. "Specification and estimation of Cobb-Douglas production function models," CORE Discussion Papers RP 12, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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    Keywords

    Research Methods/ Statistical Methods;

    JEL classification:

    • D0 - Microeconomics - - General
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables

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