Lecture 06-2005

Lecture 06-2005 - Simultaneity and Other Simple Problems...

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Simultaneity and Other “Simple” Problems Lecture VI

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Simultaneity and Estimation of the Production Function The above discussion (and estimates) makes the experimental plot design assumption regarding the data. Specifically, I essentially assumed that the data are being generated from some sort of experimental design so that the errors are truly random. If the data are actually the result of farm level decisions, the data are endogenous.
Hock, Irving. “Simultaneous Equation Bias in the Context of the Cobb-Douglas Production Function.” Econometrica 26(4)(Oct 1958): 566-78. The basic firm-level model is that we have an empirical model under the assumption of: A Cobb-Douglas production function, and Competition.

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0 0 1 q Q a q q X K X = = 0 0 0 0 q q q q X X P P a P X X = = 0 0 0 1 q q q q q X P Y a a X P Y = =
Klein demonstrates that the best linear unbiased estimate of a q is In this approach the “average” firm is defined to be the optimal firm. 1 1 0 ˆ I I qi q i i Y a Y = =

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As an alternative where R q is “some constant and the investigator wishes to test whether it is equal to one.” “The firm sets the value of the marginal product equal
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This note was uploaded on 07/15/2011 for the course AEB 6184 taught by Professor Staff during the Fall '09 term at University of Florida.

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Lecture 06-2005 - Simultaneity and Other Simple Problems...

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