TY  - JOUR
AU  - Levinsohn,James
AU  - Petrin,Amil
TI  - Estimating Production Functions Using Inputs to Control for Unobservables
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7819
PY  - 2000
Y2  - August 2000
UR  - http://www.nber.org/papers/w7819
L1  - http://www.nber.org/papers/w7819.pdf
N1  - Author contact info:
James A. Levinsohn
Yale School of Management
PO Box 208200
New Haven, CT  06520
Tel: 734/763-2319
Fax: 734/764-2769
E-Mail: James.Levinsohn@yale.edu

Amil Petrin
Department of Economics
University of Minnesota
4-101 Hanson Hall
Minneapolis, MN 55455
Tel: 612/625-0145
Fax: 612/624-0209
E-Mail: petrin@umn.edu
AB  - We introduce a new method for conditioning out serially correlated unobserved shocks to the production technology by building ideas first developed in Olley and Pakes (1996).  Olley and Pakes show how to use investment to control for correlation between input levels and the unobserved firm-specific productivity process.  We prove that like investment, intermediate inputs (those inputs which are typically subtracted out in a value-added production function) can also solve this simultaneity problem.  We highlight three potential advantages to using an intermediate inputs approach relative to investment. Our results indicate that these advantages are empirically important.
ER  -