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Title:On input market frictions and estimation of factors demand PDF Logo
Authors:Dupuy, Arnaud
Sorensen, Todd
Issue Date:2011
Series/Report no.:Discussion paper series // Forschungsinstitut zur Zukunft der Arbeit 5881
Abstract:In this paper we explore the impact of imperfectly competitive input markets on production function estimation. First order profit maximizing conditions are altered when frictions in input markets cause the elasticity of input supply to the firm to be finite. A consequence of this is that the standard econometric model used for production function estimation will be misspecified. We prove that, in all non trivial cases, finite elasticities of supply to the firm will lead to inconsistent estimates of production function parameters. Monte Carlo simulations show that the resulting bias can be economically significant.
Subjects:input market frictions
labor market frictions
estimation of factor demand
JEL:D2
J42
J23
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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