Production function estimation using subjective expectations data

Agnes Norris Keiller, Aureo de Paula and John van Reenen

No 19259, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Standard methods for estimating production functions in the Olley and Pakes (1996) tradition require assumptions on input choices. We introduce a new method that exploits (increasingly available) data on a firm's expectations of its future output and inputs that allows us to obtain consistent production function parameter estimates while relaxing these input demand assumptions. In contrast to dynamic panel methods, our proposed estimator can be implemented on very short panels (including a single cross-section), and Monte Carlo simulations show it outperforms alternative estimators when firms' material input choices are subject to optimization error. Implementing a range of production function estimators on UK data, we find our proposed estimator yields results that are either similar to or more credible than commonly-used alternatives. These differences are larger in industries where material inputs appear harder to optimize. We show that TFP implied by our proposed estimator is more strongly associated with future jobs growth than existing methods, suggesting that failing to adequately account for input endogeneity may underestimate the degree of dynamic reallocation in the economy.

Keywords: Expectations; Productivity (search for similar items in EconPapers)
JEL-codes: C21 C23 L11 L23 O31 (search for similar items in EconPapers)
Date: 2024-07
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP19259 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Production function estimation using subjective expectations data (2024)
Working Paper: Production function estimation using subjective expectations data (2024)
Working Paper: Production function estimation using subjective expectations data (2024)
Working Paper: Production function estimation using subjective expectations data (2024)
Working Paper: Production function estimation using subjective expectations data (2024)
Working Paper: Production Function Estimation Using Subjective Expectations Data (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:19259

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP19259

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().