Ajay Shenoy (UC Santa Cruz) will present:
"Estimating the Production Function When Firms Are Constrained"
at 3:20pm on Wednesday, December 13, 2017 in 310 Silsby.

Please sign up for a meeting, lunch, or dinner at:
https://docs.google.com/spreadsheets/d/10vKUIYMslNrjBoqbhdZxCGUDDzxdvp6evp0m3U23Dv0/edit?usp=sharing

ABSTRACT:
I derive a test for the key assumption behind a broad set of methods for estimating production functions: that the firm's choice of intermediate inputs depends only on its observed choices of other inputs and on unobserved productivity. This assumption fails when firms are constrained or face other market distortions, as is common in developing countries or among small firms in developed countries. The test rejects undistorted choices in many countries and industries. I show that when firms are constrained a simple autoregressive estimator becomes viable. I propose a method to choose between choice-based and autoregressive estimators, which in simulations yields lower error than either approach alone.







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