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Innovation and Welfare: Results from Joint Estimation of Production and Demand Functions

Jordi Jaumandreu () and Jacques Mairesse ()

No 16221, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper develops a simple framework to estimate the parameters of the production function together with the elasticity of the demand for the output and the impact of demand and cost shifters. The use of this framework helps, in the first place, to treat successfully the difficult problem of the endogeneity of input quantities. But it also provides a natural way to assess the welfare effects of firms' innovative actions by estimating their impact on both cost and demand. We show that the total current period (static) welfare gains of introducing a process or a product innovation are, on average, about 1.6% and 4%, respectively, of the value of the firm's current sales. The increase in consumer surplus amounts to two- thirds of these gains in the first case and half in the second.

JEL-codes: C33 D21 D24 D62 O31 (search for similar items in EconPapers)
Date: 2010-07
Note: PR
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