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On Input Market Frictions and Estimation of Factors' Demand

Arnaud Dupuy () and Todd Sorensen ()

Southern Economic Journal, 2014, vol. 80, issue 3, 772-781

Abstract: In this article, we explore the impact of imperfectly competitive input markets on production function estimation. First‐order profit‐maximizing conditions are altered when frictions in input markets cause the elasticity of input supply to the firm to be finite. A consequence of this is that the standard econometric model used for production function estimation will be misspecified. We prove that, in all nontrivial cases, finite elasticities of supply to the firm will lead to inconsistent estimates of production function parameters. Monte Carlo simulations show that the resulting bias can be economically significant.

Date: 2014
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https://doi.org/10.4284/0038-4038-2012.245

Related works:
Journal Article: On Input Market Frictions and Estimation of Factors' Demand (2014) Downloads
Working Paper: On Input Market Frictions and Estimation of Factors' Demand (2013) Downloads
Working Paper: On Input Market Frictions and Estimation of Factors’ Demand (2012) Downloads
Working Paper: On Input Market Frictions and Estimation of Factors Demand (2011) Downloads
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