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

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  • David Prentice

    (Department of Economics and Finance, La Trobe University)

Abstract

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.

Suggested Citation

  • David Prentice, 1998. "A Micro-Economic Model of a Short Run Cost Function with Unobserved Heterogeneity," Working Papers 1998.01, School of Economics, La Trobe University.
    • Handle: RePEc:ltr:wpaper:1998.01
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    1. David Prentice, 1998. "A Micro-Economic Model of a Short Run Cost Function with Unobserved Heterogeneity," Working Papers 1998.01, School of Economics, La Trobe University.
    2. Dionne, Georges & Gagne, Robert & Vanasse, Charles, 1998. "Inferring technological parameters from incomplete panel data," Journal of Econometrics, Elsevier, vol. 87(2), pages 303-327, September.
    3. David Prentice, 1998. "A Micro-Economic Model of a Short Run Cost Function with Unobserved Heterogeneity," Working Papers 1998.01, School of Economics, La Trobe University.
    4. Das, Sanghamitra, 1991. "A semiparametric structural analysis of the idling of cement kilns," Journal of Econometrics, Elsevier, vol. 50(3), pages 235-256, December.
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    8. Sanghamitra Das, 1992. "A Micro-Econometric Model of Capital Utilization and Retirement: The Case of the U.S. Cement Industry," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(2), pages 277-297.
    9. 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, , vol. 8(3), pages 93-112, July.
    10. Timothy F. Bresnahan & Valerie A. Ramey, 1994. "Output Fluctuations at the Plant Level," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(3), pages 593-624.
    11. Steven J. Davis & John Haltiwanger, 1992. "Gross Job Creation, Gross Job Destruction, and Employment Reallocation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(3), pages 819-863.
    12. McBride, Mark E, 1983. "Spatial Competition and Vertical Integration: Cement and Concrete Revisited," American Economic Review, American Economic Association, vol. 73(5), pages 1011-1022, December.
    13. 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.
    14. 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 469-474, October.
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    1. David Prentice, 1998. "A Micro-Economic Model of a Short Run Cost Function with Unobserved Heterogeneity," Working Papers 1998.01, School of Economics, La Trobe University.

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    More about this item

    Keywords

    Economic Models; Evaluation EDIRC Provider-Institution: RePEc:edi:smlatau;

    JEL classification:

    • L61 - Industrial Organization - - Industry Studies: Manufacturing - - - Metals and Metal Products; Cement; Glass; Ceramics
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities

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