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Comment on “Olley and Pakes‐style Production Function Estimators with Firm Fixed Effects”

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  • Daniel A. Ackerberg

Abstract

In this comment I illustrate that in the model of (Lee et al. (2019). Oxford Bulletin of Economics and Statistics. Vol. 81, pp. 80–97), firm profit maximizing implies that Assumption 2 and Equation 14 may be contradictory. More specifically, there is generally a contradiction when investment is used as the control variable, but there is generally not a contradiction when a static input like material input is used as the control variable (both types of control variables are discussed in Lee et al.). While the Lee et al. model and techniques are an interesting way to incorporate fixed effects into Olley and Pakes‐style production function estimators, this observation suggests that their application should be restricted to cases where static inputs are used as control variables.

Suggested Citation

  • Daniel A. Ackerberg, 2021. "Comment on “Olley and Pakes‐style Production Function Estimators with Firm Fixed Effects”," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 83(3), pages 836-840, June.
    • Handle: RePEc:bla:obuest:v:83:y:2021:i:3:p:836-840
    DOI: 10.1111/obes.12406
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    References listed on IDEAS

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    1. Richard Blundell & Stephen Bond, 2000. "GMM Estimation with persistent panel data: an application to production functions," Econometric Reviews, Taylor & Francis Journals, vol. 19(3), pages 321-340.
    2. Amit Gandhi & Salvador Navarro & David A. Rivers, 2020. "On the Identification of Gross Output Production Functions," Journal of Political Economy, University of Chicago Press, vol. 128(8), pages 2973-3016.
    3. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-1297, November.
    4. Daniel A. Ackerberg & Kevin Caves & Garth Frazer, 2015. "Identification Properties of Recent Production Function Estimators," Econometrica, Econometric Society, vol. 83, pages 2411-2451, November.
    5. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(2), pages 317-341.
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