The production approach to markup estimation often measures input distortions

Arshia Hashemi, Ivan Kirov and James Traina ()

Economics Letters, 2022, vol. 217, issue C

Abstract: The production approach recovers markups using the output elasticity for a variable and undistorted input. We show using the revenue elasticity for a variable input recovers that input’s wedge. Our result has two implications. First, in the canonical setting with CES demand and monopolistic competition, past research using the production approach with revenue data should be recast as evidence of input, rather than output, distortions. Second, future research can use the production approach with revenue data to study input distortions, provided researchers can measure inputs in physical units. A promising application pertains to labor market distortions.

Keywords: Markups; Input distortions; Output elasticity; Revenue elasticity (search for similar items in EconPapers)
JEL-codes: D24 D40 L11 L16 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:217:y:2022:i:c:s0165176522002257

DOI: 10.1016/j.econlet.2022.110673

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