Panel data estimates of the production function and the revenue function: What differences does it make?

Abstract

The lack of individual firm information on output prices is a major problem in the econometrics of production. In particular, it may be expected to account for a significant share of the large discrepancies found between the cross-sectional and time-series estimates of capital and scale elasticities. However, taking advantage of two panel-data samples for which we had such information, we find that estimating the revenue function (using a nominal output measure) or the production function proper (using a real output measure) makes very little difference for our results. The biases due to other sources of specification errors are probably more important.