Publication: Using price and demand information to identify production functions
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2006-12
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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 distribution assumptions on unobserved efficiency and, in addition, an estimate of the price elasticity of demand is recovered.