EconPapers    
Economics at your fingertips  
 

Some unpleasant markup arithmetic: Production function elasticities and their estimation from production data

Steve Bond, Arshia Hashemi, Greg Kaplan and Piotr Żoch

Journal of Monetary Economics, 2021, vol. 121, issue C, 1-14

Abstract: The ratio estimator of the markup is the ratio of the output elasticity for a flexible input to that input’s cost share in total revenue. We highlight identification and estimation issues pertaining to this ratio estimator, when firm-level output prices are not observed. If the revenue elasticity for a flexible input is used in place of the output elasticity, then profit maximization implies that the ratio estimator is identically equal to one, and thus is uninformative about markups. Concerning estimation of output elasticities: with only revenue data, profit maximization also implies that the output elasticity is not identified non-parametrically from estimation of the revenue production function, if firms have market power. Even with separate output price and quantity data, it is challenging to estimate the output elasticity consistently if there are non-linear productivity dynamics and firms face heterogeneous demand schedules, with unobserved variation in a demand shifter.

Keywords: Markups; Output elasticity; Revenue elasticity; Production functions (search for similar items in EconPapers)
JEL-codes: D2 D4 L1 L2 (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (83)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304393221000544
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Some Unpleasant Markup Arithmetic: Production Function Elasticities and their Estimation from Production Data (2020) Downloads
Working Paper: Some Unpleasant Markup Arithmetic: Production Function Elasticities and their Estimation from Production Data (2020) Downloads
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:eee:moneco:v:121:y:2021:i:c:p:1-14

DOI: 10.1016/j.jmoneco.2021.05.004

Access Statistics for this article

Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser

More articles in Journal of Monetary Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2025-02-01
Handle: RePEc:eee:moneco:v:121:y:2021:i:c:p:1-14