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Tests of representative firm models: results for German manufacturing industries

  • Koebel, Bertrand M.

Many studies of producer behavior consider cost and input demand functions de-rived from microeconomic theory and estimate them on the basis of aggregate data. If firms' characteristics differs, the neglect heterogeneity can lead to estimation bias. An alternative is to restrict individual behavioral functions to be linear in the firm specific parameters. The aim of this paper is to describe aggregate producer behavior without placing too strong restrictions on the functional form and to explicitly take account of firm heterogeneity. Estimation for German manufacturing sectors confirms that ne-glected heterogeneity is an important source of bias in representative agent models.

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Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 96-16.

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Date of creation: 1996
Date of revision:
Handle: RePEc:zbw:zewdip:9616
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  1. Diewert, W E & Wales, T J, 1992. "Quadratic Spline Models for Producer's Supply and Demand Functions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(3), pages 705-22, August.
  2. Flaig, Gebhard & Steiner, Viktor, 1993. "Searching for the \"productivity slowdown’: some surprising findings from West German manufacturing," Munich Reprints in Economics 20364, University of Munich, Department of Economics.
  3. Diewert, W. E., 1973. "Functional forms for profit and transformation functions," Journal of Economic Theory, Elsevier, vol. 6(3), pages 284-316, June.
  4. Heineke, John M & Shefrin, Hersh M, 1988. "Exact Aggregation and the Finite Basis Property," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(3), pages 525-38, August.
  5. Sleuwaegen, Leo E & Dehandschutter, Wim V, 1986. "The Critical Choice between the Concentration Ratio and the H-Index in Assessing Industry Performance," Journal of Industrial Economics, Wiley Blackwell, vol. 35(2), pages 193-208, December.
  6. Conrad, Klaus & Unger, Ralph, 1987. "Ex post tests for short-and long-run optimization," Journal of Econometrics, Elsevier, vol. 36(3), pages 339-358, November.
  7. W. Erwin Diewert & T.J. Wales, 1989. "Flexible Functional Forms and Global Curvature Conditions," NBER Technical Working Papers 0040, National Bureau of Economic Research, Inc.
  8. Chavas, Jean-Paul, 1993. "On aggregation and its implications for aggregate behaviour," Ricerche Economiche, Elsevier, vol. 47(2), pages 201-214, June.
  9. Kodde, D A & Palm, Franz C & Pfann, G A, 1990. "Asymptotic Least-Squares Estimation Efficiency Considerations and Applications," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 5(3), pages 229-43, July-Sept.
  10. Appelbaum, Elie, 1982. "The estimation of the degree of oligopoly power," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 287-299, August.
  11. Schmalensee, Richard, 1977. "Using the H-Index of Concentration with Published Data," The Review of Economics and Statistics, MIT Press, vol. 59(2), pages 186-93, May.
  12. Lewbel, Arthur, 1993. "Distribution movements, macroeconomic regularities and the representative consumer," Ricerche Economiche, Elsevier, vol. 47(2), pages 189-199, June.
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