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Malmquist and Törnqvist Productivity Indexes: Returns to Scale and Technical Progress with Imperfect Competition

Listed author(s):
  • Diewert, Erwin
  • Fox, Kevin J.

Caves, Christensen and Diewert proposed a method for estimating a theoretical productivity index for a firm using Törnqvist input and output indexes, augmented by exogenous estimates of local returns to scale. However, in order to implement their method, they assumed that the firm maximized revenue in each period, conditional on the observed input vector in each period, taking output prices as fixed. This assumption is not warranted when there are increasing returns to scale. Thus in the present paper, it is assumed that the firm solves a monopolistic profit maximization problem when there are increasing returns to scale and the results of Caves, Christensen and Diewert are modified in accordance with this assumption.

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Paper provided by Vancouver School of Economics in its series Economics working papers with number erwin_diewert-2010-5.

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Length: 24 pages
Date of creation: 17 Feb 2010
Date of revision: 13 Jul 2010
Handle: RePEc:ubc:bricol:erwin_diewert-2010-5
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