Untested Assumptions and Data Slicing: A Critical Review of Firm-Level Production Function Estimators

Markus Eberhardt and Christian Helmers ()

No 513, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: This paper surveys the most popular parametric and semi-parametric estimators for Cobb-Douglas production functions arising from the econometric literature of the past two decades. We focus on the different approaches dealing with 'transmission bias' in firm-level studies, which arises from firms' reaction to unobservable productivity realisations when making input choices. The contribution of the paper is threefold: we provide applied economists with (i) an in-depth discussion of the estimation problem and the solutions suggested in the literature; (ii) a detailed empirical example using FAME data for UK high-tech firms, emphasising analytical tools to investigate data properties and the robustness of the empirical results; (iii) a powerful illustration of the impact of estimator choice on TFP estimates, using matched data on patents in 'TFP regressions'. Our discussion concludes that while from a theoretical point of view the different estimators are conceptually very similar, in practice, the choice of the preferred estimator is far from arbitrary and instead requires in-depth analysis of the data properties rather than blind belief in asymptotic consistency.

Keywords: Productivity; production function; UK firms; panel data estimates (search for similar items in EconPapers)
JEL-codes: D21 D24 L25 O23 (search for similar items in EconPapers)
Date: 2010-11-01
New Economics Papers: this item is included in nep-ecm and nep-eff
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (63)

Downloads: (external link)
https://ora.ox.ac.uk/objects/uuid:0ac64b00-91f2-4b0c-b79a-ed50e5b2405c (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oxf:wpaper:513

Access Statistics for this paper

More papers in Economics Series Working Papers from University of Oxford, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Anne Pouliquen ( this e-mail address is bad, please contact ).