The Inconsistency of Common Scale Estimators When Output Prices Are Unobserved and Engogenous / Tor Jakob Klette, Zvi Griliches.

Format:

Book

Author/Creator:

Klette, Tor Jakob.

Contributor:

National Bureau of Economic Research.

Griliches, Zvi.

Series:

Working Paper Series (National Bureau of Economic Research) no. w4026.

NBER working paper series no. w4026

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1992.

Summary:

This paper explores the inconsistency of common scale estimators when output is proxied by deflated sales, based on a common output deflator across firms. The problems arise when firms operate in an imperfectly competitive environment and prices differ between firms. In particular, we show that the scale estimates will tend to be downward biased in the production function case, under a wide range of assumptions about the pattern of technology, demand and factor price shocks. The result also holds for scale estimates obtained from cost functions. The empirical part of the paper presents various estimates of scale economies for a sample of Norwegian manufacturing plants. The findings provide some support for the hypothesis that the firms face an imperfectly competitive environment. The estimates suggests that there are significant markups and scale economies to the variable factors of production in our sample. However, the estimates of markups and scale economies presented in this paper are substantially lower than the results obtained by Hall (1988, 1990) and others using industry level data.

Notes:

Print version record

March 1992.