On Input Market Frictions and Estimation of Factors’ Demand

Arnaud Dupuy () and Todd Sorense
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Todd Sorense: Department of Economics, University of California, Riverside. todd.sorensen@ucr.edu. 4128 Sproul Hall, 900 University Ave. Riverside, CA 92521

No 2012/11, Working Papers from Maastricht School of Management

Abstract: In this paper we explore the impact of imperfectly competitive input markets on production function estimation. First order pro t maximizing conditions are altered when frictions in input markets cause the elasticity of input supply to the rm to be nite. A consequence of this is that the standard econometric model used for production function estimation will be misspeci ed. We prove that, in all non trivial cases, nite elasticities of supply to the rm will lead to inconsistent estimates of production function parameters. Monte Carlo simulations show that the resulting bias can be economically signi cant.

Keywords: Input Market Frictions; Labor Market Frictions; Estimation of Factor Demand (search for similar items in EconPapers)
JEL-codes: D2 J23 J42 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2012-03
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http://web2.msm.nl/RePEc/msm/wpaper/MSM-WP2012-11.pdf First version, 2012 (application/pdf)

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 (2011)
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