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Using price and demand information to identify production functions

Author

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  • Jaumandreu, Jordi
  • Mairesse, Jacques

Abstract

This paper explores the use of information on the firm-level prices of the produced output and employed inputs, as well as on the firm-level demand relationship, to identify the parameters of the production function. By considering the system of equations which includes the demands for variable inputs, the demand for the product of the firm and the pricing rule, both the production function and the cost equation can be rewritten in terms of fixed inputs and exogenous determinants (semi-reduced forms). Consistent estimation of this two equation system is possible under no especial distri-bution assumptions on unobserved e fficiency and, in addition, an estimate of the price elasticity of demand is recovered.

Suggested Citation

  • Jaumandreu, Jordi & Mairesse, Jacques, 2006. "Using price and demand information to identify production functions," MPRA Paper 1247, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:1247
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    File URL: https://mpra.ub.uni-muenchen.de/1247/1/MPRA_paper_1247.pdf
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    References listed on IDEAS

    as
    1. Zvi Griliches & Jacques Mairesse, 1995. "Production Functions: The Search for Identification," NBER Working Papers 5067, National Bureau of Economic Research, Inc.
    2. Zvi Griliches, 1998. "Productivity and R&D at the Firm Level," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 100-133, National Bureau of Economic Research, Inc.
    3. Zvi Griliches, 1984. "R&D, Patents, and Productivity," NBER Books, National Bureau of Economic Research, Inc, number gril84-1.
    4. Ackerberg, Daniel & Lanier Benkard, C. & Berry, Steven & Pakes, Ariel, 2007. "Econometric Tools for Analyzing Market Outcomes," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 63, Elsevier.
    5. 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.
    6. Carmine Ornaghi, 2006. "Assessing the effects of measurement errors on the estimation of production functions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(6), pages 879-891.
    7. Jacques Mairesse & Jordi Jaumandreu, 2005. "Panel‐data Estimates of the Production Function and the Revenue Function: What Difference Does It Make?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(4), pages 651-672, December.
    8. Zvi Griliches & Jacques Mairesse, 1981. "Productivity and R and D at the Firm Level," NBER Working Papers 0826, National Bureau of Economic Research, Inc.
    9. 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.
    10. Fioretti, Guido, 2007. "The production function," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 374(2), pages 707-714.
    11. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Dobbelaere, Sabien & Kiyota, Kozo & Mairesse, Jacques, 2015. "Product and labor market imperfections and scale economies: Micro-evidence on France, Japan and the Netherlands," Journal of Comparative Economics, Elsevier, vol. 43(2), pages 290-322.
    2. Doraszelski, Ulrich & Jaumandreu, Jordi, 2006. "R&D and productivity: Estimating production functions when productivity is endogenous," MPRA Paper 1246, University Library of Munich, Germany.
    3. Aida Caldera, 2010. "Innovation and exporting: evidence from Spanish manufacturing firms," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 146(4), pages 657-689, December.

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    More about this item

    Keywords

    production function; demand relationship; reduced form; equation system;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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