Estimating State-Contingent Production Frontiers

Christopher O'Donnell and William Griffiths ()

No 911, Department of Economics - Working Papers Series from The University of Melbourne

Abstract: Chambers and Quiggin (2000) advocate the use of state-contingent production technologies to represent risky production and establish important theoretical results concerning producer behaviour under uncertainty. Unfortunately, perceived problems in the estimation of state-contingent models have limited the usefulness of the approach in policy formulation. We show that fixed and random effects state-contingent production frontiers can be conveniently estimated in a finite mixtures framework. An empirical example is provided. Compared to standard estimation approaches, we find that estimating production frontiers in a state-contingent framework produces significantly different estimates of elasticities, firm technical efficiencies and other quantities of economic interest.

Pages: 33 pages
Date: 2004
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Citations: View citations in EconPapers (12)

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Related works:
Journal Article: Estimating State-Contingent Production Frontiers (2006)
Working Paper: ESTIMATING STATE-CONTINGENT PRODUCTION FRONTIERS (2004)
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