The Sensitivity of Productivity Growth Measures to Alternative Structural and Behavioral Assumptions: An Application to Electric Utilities, 1951-1984

Scott J Callan

Journal of Business & Economic Statistics, 1991, vol. 9, issue 2, 207-13

Abstract: This article examines the sensitivity of three alternative multifactor productivity growth estimates for the electric-utility industry during the 1951-84 period. The results indicate that multifactor productivity growth estimates are quite sensitive to the relaxation of various structural and behavioral assumptions. First, a benchmark measure is contructed along the line as suggested by Solow (1957). This "residual" approach produces estimates that suggest a substantial decline in firm-level productivity growth after the mid-1960s. Prior to obtaining the second and third estimates, empirical tests of the structural and behavioral assumptions underlying a firm's operation are conducted. First, the structural assumption of constant returns to scale is rejected, and the resulting long-run scale-adjusted multifactor productivity growth estimates are found to be consistently less than the residual estimates. Second, the behavioral assumption of long-run equilibrium is rejected. Comparing the long-run scale-adjusted estimates to scale-adjusted short-run multifactor productivity growth estimates reveals substantial differences.

Date: 1991
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Persistent link: https://EconPapers.repec.org/RePEc:bes:jnlbes:v:9:y:1991:i:2:p:207-13

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