NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Inconsistency of Common Scale Estimators When Output Prices Are Unobserved and Engogenous

Tor Jakob Klette, Zvi Griliches

NBER Working Paper No. 4026 (Also Reprint No. r2099)
Issued in March 1992
NBER Program(s):   PR

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.

download in pdf format
   (403 K)

download in djvu format
   (265 K)

email paper

This paper is available as PDF (403 K) or DjVu (265 K) (Download viewer) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w4026

Published: Journal of Applied Econometrics, vol. 11, pp. 343-361, 1996. citation courtesy of

Users who downloaded this paper also downloaded these:
Griliches and Mairesse w5067 Production Functions: The Search for Identification
Griliches R&D and Productivity: The Unfinished Business
De Loecker w13155 Product Differentiation, Multi-product Firms and Estimating the Impact of Trade Liberalization on Productivity
Klette and Griliches w6753 Empirical Patterns of Firm Growth and R&D Investment: A QuUality LadderModel Interpretation
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us