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Innovation and Welfare: Results from Joint Estimation of Production and Demand Functions

Author

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  • Jordi Jaumandreu
  • Jacques Mairesse

Abstract

This paper develops a simple framework to estimate the parameters of the production function together with the elasticity of the demand for the output and the impact of demand and cost shifters. The use of this framework helps, in the first place, to treat successfully the difficult problem of the endogeneity of input quantities. But it also provides a natural way to assess the welfare effects of firms' innovative actions by estimating their impact on both cost and demand. We show that the total current period (static) welfare gains of introducing a process or a product innovation are, on average, about 1.6% and 4%, respectively, of the value of the firm's current sales. The increase in consumer surplus amounts to two- thirds of these gains in the first case and half in the second.

Suggested Citation

  • Jordi Jaumandreu & Jacques Mairesse, 2010. "Innovation and Welfare: Results from Joint Estimation of Production and Demand Functions," NBER Working Papers 16221, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:16221
    Note: PR
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    Citations

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    Cited by:

    1. Dobbelaere, Sabien & Mairesse, Jacques, 2018. "Comparing micro-evidence on rent sharing from two different econometric models," Labour Economics, Elsevier, vol. 52(C), pages 18-26.
    2. Cassiman, Bruno & ,, 2013. "Profiting from Innovation: Firm Level Evidence on Markups," CEPR Discussion Papers 9703, C.E.P.R. Discussion Papers.
    3. Jordi Jaumandreu & Jacques Mairesse, 2017. "Disentangling the effects of process and product innovation on cost and demand," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 26(1-2), pages 150-167, February.

    More about this item

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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