Journal article
Estimating production functions with control functions when capital is measured with error
Journal of econometrics, Vol.190(2), pp.267-279
02/01/2016
DOI: 10.1016/j.jeconom.2015.06.016
Abstract
We revisit the production function estimators of Olley and Pakes (1996) and Levinsohn and Petrin (2003). They use control functions to address the simultaneous determination of inputs and productivity. Both assume that input demand is a monotonic function of productivity holding capital constant and then invert this function to condition on productivity during estimation. If the observed capital variable is measured with error, input demand will not generally be monotonic in the productivity shock holding observed capital constant. We develop consistent estimators of production function parameters in the face of this measurement error. Our identification and estimation results combine the nonlinear measurement error literature with Wooldridge’s (2009) joint estimation method to construct a proxy for productivity that addresses simultaneity. Our approach directly extends to the case where other inputs like intermediates or labor are observed with error.
Details
- Title: Subtitle
- Estimating production functions with control functions when capital is measured with error
- Creators
- Kyoo il Kim - Michigan State UniversityAmil Petrin - University of MinnesotaSuyong Song - University of Iowa
- Resource Type
- Journal article
- Publication Details
- Journal of econometrics, Vol.190(2), pp.267-279
- DOI
- 10.1016/j.jeconom.2015.06.016
- ISSN
- 0304-4076
- eISSN
- 1872-6895
- Publisher
- Elsevier B.V
- Grant note
- name: Yoshio Niho Excellence Fund
- Language
- English
- Date published
- 02/01/2016
- Academic Unit
- Economics; Finance
- Record Identifier
- 9984380429802771
Metrics
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