On Input Market Frictions and Estimation of Factors Demand

Arnaud Dupuy () and Todd Sorensen

No 5881, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In this paper 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 non trivial 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.

Keywords: labor market frictions; estimation of factor demand; input market frictions (search for similar items in EconPapers)
JEL-codes: D2 J23 J42 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2011-07
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Published - published as 'On input market frictions and estimation of factors' demand' in: Southern Economic Journal, 2014, 80 (3), 772-782.

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