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Prices, Profits, and Production: Identification and Counterfactuals

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  • Victor H. Aguiar
  • Roy Allen
  • Nail Kashaev

Abstract

This paper studies nonparametric identification and counterfactual bounds for heterogeneous firms that can be ranked in terms of productivity. We require observation of profits or other optimizing-values such as costs or revenues, and either prices or attributes that determine prices. We extend classical duality results for price-taking firms to a setup with rich heterogeneity, and with limited variation in prices. We characterize the identified set for production sets, and provide conditions that ensure point identification. We present a general computationally-feasible framework for sharp counterfactual bounds, such as bounds on quantities at a counterfactual price. We show that existing convergence results for quantile estimators may be directly converted to convergence results for production sets, which facilitates statistical inference.

Suggested Citation

  • Victor H. Aguiar & Roy Allen & Nail Kashaev, 2018. "Prices, Profits, and Production: Identification and Counterfactuals," Papers 1810.04697, arXiv.org, revised Jan 2019.
  • Handle: RePEc:arx:papers:1810.04697
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    References listed on IDEAS

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