On the non-identification of revenue production functions

David Van Dijcke

No 1015, Bank of England working papers from Bank of England

Abstract: It is well‑known that production functions are potentially misspecified when revenue is used as a proxy for output. In this paper, I formalise and strengthen this common knowledge by showing that neither the production function nor Hicks‑neutral productivity can be identified when revenue is used as a proxy for physical output. This result holds under the standard assumptions used in the literature for a large class of production functions, including all commonly used parametric forms. Among the prevalent approaches to address this issue, I show that only those which impose assumptions on the underlying demand system can possibly identify the production function.

Keywords: Production function estimation; revenue production functions; productivity; market power; identification (search for similar items in EconPapers)
JEL-codes: C01 D02 D04 E02 L10 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2023-02-17
New Economics Papers: this item is included in nep-eff
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Related works:
Working Paper: On the Non-Identification of Revenue Production Functions (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:1015

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