Estimating Production Functions Using Inputs to Control for Unobservables
We introduce a new method for conditioning out serially correlated unobserved shocks to the production technology by building ideas first developed in Olley and Pakes (1996). Olley and Pakes show how to use investment to control for correlation between input levels and the unobserved firm-specific productivity process. We prove that like investment, intermediate inputs (those inputs which are typically subtracted out in a value-added production function) can also solve this simultaneity problem. We highlight three potential advantages to using an intermediate inputs approach relative to investment. Our results indicate that these advantages are empirically important.
|Date of creation:||Aug 2000|
|Date of revision:|
|Publication status:||published as Levinsohn, James and Amil Petrin. "Estimating Production Functions Using Inputs To Control For Unobservables," Review of Economic Studies, 2003, v70(2,Apr), 317-341.|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:7819. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.