Assessing the effects of measurement errors on the estimation of production functions
Assessing the effects of measurement errors on the estimation of production functions
This article explores to what extent the poor results that are often found when estimating parameters of production functions can be attributed to measurement errors, due to the use of common price deflators across firms. Because of the lack of detailed micro-economic data, econometricians have to rely on industry-wide deflators when computing outputs and intermediate inputs. A unique feature of the longitudinal data used in this paper is that it reports firm-level prices. This allows for a comparative assessment of production function parameters where the outputs and intermediate inputs are computed using both firm-specific prices and industry-wide deflators. The empirical results presented in this paper show that the use of common deflators across firms leads to lower scale estimates, mainly because of a large downward bias in the estimated coefficients for labour
879-891
Ornaghi, Carmine
33275e47-4642-4023-a195-39c91d0146b0
September 2006
Ornaghi, Carmine
33275e47-4642-4023-a195-39c91d0146b0
Ornaghi, Carmine
(2006)
Assessing the effects of measurement errors on the estimation of production functions.
Journal of Applied Econometrics, 21 (6), .
(doi:10.1002/jae.887).
Abstract
This article explores to what extent the poor results that are often found when estimating parameters of production functions can be attributed to measurement errors, due to the use of common price deflators across firms. Because of the lack of detailed micro-economic data, econometricians have to rely on industry-wide deflators when computing outputs and intermediate inputs. A unique feature of the longitudinal data used in this paper is that it reports firm-level prices. This allows for a comparative assessment of production function parameters where the outputs and intermediate inputs are computed using both firm-specific prices and industry-wide deflators. The empirical results presented in this paper show that the use of common deflators across firms leads to lower scale estimates, mainly because of a large downward bias in the estimated coefficients for labour
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Published date: September 2006
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Local EPrints ID: 47651
URI: http://eprints.soton.ac.uk/id/eprint/47651
ISSN: 0883-7252
PURE UUID: 2a7ef4cd-c69f-4c5f-89fd-c8157114637b
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Date deposited: 07 Aug 2007
Last modified: 16 Mar 2024 03:42
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