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A Micro-Economic Model of a Short Run Cost Function with Unobserved Heterogeneity

  • David Prentice

    (School of Economics, La Trobe University)

Recent work has suggested plant level heterogeneity and discrete production processes can produce problems for estimation. A structural model of discrete production decisions by heterogeneous plants is constructed and, as a case study, estimated for the US Portland cement industry. In particular, an ordered probit model is extended to encapsulate the structural model and to handle incomplete ordering. This is the first application of the ordered probit model for the direct estimation of a short run cost function. The results broadly support the structure suggested by the industry technology and competitive conditions. Differences between industry averages of input requirements and many of the estimates of these coefficients are statistically insignificant.

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Paper provided by School of Economics, La Trobe University in its series Working Papers with number 1998.01.

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Length: 33 pages
Date of creation: 1998
Date of revision:
Handle: RePEc:trb:wpaper:1998.01
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  1. Dionne, G. & Gane, R. & Vanasse, C., 1995. "Infessing Technological Parameters from Incomplete Panel Data," Cahiers de recherche 9537, Centre interuniversitaire de recherche en ├ęconomie quantitative, CIREQ.
  2. Bresnahan, Timothy F., 1989. "Empirical studies of industries with market power," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 17, pages 1011-1057 Elsevier.
  3. George S Olley & Ariel Pakes, 1992. "The Dynamics Of Productivity In The Telecommunications Equipment Industry," Working Papers 92-2, Center for Economic Studies, U.S. Census Bureau.
  4. Lindenberg, Eric B & Ross, Stephen A, 1981. "Tobin's q Ratio and Industrial Organization," The Journal of Business, University of Chicago Press, vol. 54(1), pages 1-32, January.
  5. Das, Sanghamitra, 1991. "Estimation of Fuel Coefficients of Cement Production: A Fixed-Effects Approach to Nonlinear Regression," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(4), pages 469-74, October.
  6. Das, Sanghamitra, 1992. "A Micro-econometric Model of Capital Utilization and Retirement: The Case of the U.S. Cement Industry," Review of Economic Studies, Wiley Blackwell, vol. 59(2), pages 277-97, April.
  7. Charles A. Capone, Jr. & Kenneth G. Elzinga, 1987. "Technology and Energy Use Before, During, and After OPEC: The U.S. Portland Cement Industry," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 93-112.
  8. Das, Sanghamitra, 1991. "A semiparametric structural analysis of the idling of cement kilns," Journal of Econometrics, Elsevier, vol. 50(3), pages 235-256, December.
  9. McBride, Mark E, 1983. "Spatial Competition and Vertical Integration: Cement and Concrete Revisited," American Economic Review, American Economic Association, vol. 73(5), pages 1011-22, December.
  10. Bresnahan, Timothy F & Reiss, Peter C, 1990. "Entry in Monopoly Markets," Review of Economic Studies, Wiley Blackwell, vol. 57(4), pages 531-53, October.
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