IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/19677.html

Robust Production Function Estimation when there is Market Power

Author

Listed:
  • Jaumandreu, Jordi

Abstract

The production function is an engineering relationship, but recent estimators use firm’s optimal choices that depend on market power. Researchers often become puzzled: the estimator dynamic panel (DP), which is robust to market power because it does not use any FOC, often produces unsatisfactory outcomes; the estimators known as OP/LP, which are deemed inconsistent in the presence of market power, typically improve. We prove that the coincidence of DP and OP/LP, except by sampling error, is a necessary condition for consistency, and show how the improvements relate to the production function specification. We derive a novel estimator, robust to arbitrary forms of market power, based on a version of OP/LP that proxies for MC. Using this estimator, we propose a test for market power and a test for the specification, the latter based on the smaller set of assumptions used by DP.

Suggested Citation

  • Jaumandreu, Jordi, 2024. "Robust Production Function Estimation when there is Market Power," CEPR Discussion Papers 19677, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:19677
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP19677
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:19677. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CEPR (email available below). General contact details of provider: https://cepr.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.