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Product differentiation and quality in production function estimation

Author

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  • Hahn, Nadine

Abstract

Production functions provide a mapping from the firms' input quantity and productivity to output quantity. This mapping only generates unbiased estimates if input and output quality variation within and between observation units is accounted for. I review and classify state-of-the-art methods to address quality and price variation in production function estimation. Even if inputs and outputs are observed in quantities, unobserved quality variation might bias production function estimates for industries with differentiated products. To account for quality variation, I introduce product characteristics to the estimation procedure and provide an application to the European car industry.

Suggested Citation

  • Hahn, Nadine, 2024. "Product differentiation and quality in production function estimation," ZEW Discussion Papers 24-049, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:300673
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    More about this item

    Keywords

    Production Functions; Product Differentiation; Quality Control Functions;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

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