Robust Error Specification in a Production System

Rulon D Pope and Jeffrey LaFrance ()

No 17-12, Monash Economics Working Papers from Monash University, Department of Economics

Abstract: Economists who estimate demand or supply systems are often faced with the issue of whether to estimate with shares or quantities as the dependent variables. This paper reviews the implications of making the wrong choice in the context of normalized profit functions of competitive behavior. The implication is that inconsistent estimates are obtained if one makes the wrong choice. A robust structure is proposed which nests these forms (shares or quantities) in a general system and that allows the data to suggest which form is preferable. An application to the U.S. agricultural sector follows. Our results suggest that shares and quantities are rejected in favor of an alternative functional form.

Keywords: Netputs; robust estimation (search for similar items in EconPapers)
JEL-codes: C51 Q11 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2012-09
New Economics Papers: this item is included in nep-agr, nep-ecm and nep-eff
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Journal Article: Robust Error Specification in a Production System (2013)
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