On the Estimation of Marginal Cost

Manthos Delis (), Maria Iosifidi () and Mike Tsionas
Additional contact information
Maria Iosifidi: Surrey Business School, University of Surrey, Guildford, GU2 7XH, United Kingdom

Operations Research, 2014, vol. 62, issue 3, 543-556

Abstract: This article proposes the estimation of the marginal cost of individual firms using semiparametric and nonparametric methods. These methods have a number of appealing features when applied to cost functions. The empirical analysis uses data from a unique sample of the California electricity industry for which we observe the actual marginal cost and estimate the marginal cost from these data. We compare the actual values of marginal cost with the estimates from semiparametric and nonparametric methods, as well as with the estimates obtained through conventional parametric methods. We show that the semiparametric and nonparametric methods produce marginal cost estimates that very closely approximate the actual. In contrast, the results from conventional parametric methods are significantly biased and provide invalid inference.

Keywords: estimation of marginal cost; parametric models; semiparametric models; nonparametric models; California electricity industry; actual and simulated data (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (22)

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http://dx.doi.org/10.1287/opre.2014.1264 (application/pdf)

Related works:
Working Paper: On the estimation of marginal cost (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:inm:oropre:v:62:y:2014:i:3:p:543-556

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