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Lecture07-2011

# Lecture07-2011 - Outline Stochastic Production Functions...

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Outline Stochastic Production Functions Consistent Estimation Panel Data Specification The Stochastic Nature of Production: Lecture VII Charles B. Moss 1 1 University of Florida September 15, 2011 Charles B. Moss The Stochastic Nature of Production: Lecture VII

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Outline Stochastic Production Functions Consistent Estimation Panel Data Specification 1 Stochastic Production Functions Just and Pope Propositions Individual Functions An Alternative Specification 2 Consistent Estimation 3 Panel Data Specification Charles B. Moss The Stochastic Nature of Production: Lecture VII
Outline Stochastic Production Functions Consistent Estimation Panel Data Specification Just and Pope Propositions Individual Functions An Alternative Specification Stochastic Production Functions Just, Richard E. and Rulan D. Pope. 1978. Stochastic Specificaiton of Production Functions and Economic Implications Journal of Econometrics 7(1), 67-86. Our development of the random characteristics of the production function was largely one of convenience. We started with a production function that we wanted to estimate f ( x 1 , x 2 ) = α 0 x α 1 1 x α 2 2 g ( x 1 , x 2 ) = a 0 + a 1 x 1 + a 2 x 2 + A 11 x 2 1 + 2 A 12 x 1 x 2 + A 22 x 2 2 (1) Charles B. Moss The Stochastic Nature of Production: Lecture VII

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Outline Stochastic Production Functions Consistent Estimation Panel Data Specification Just and Pope Propositions Individual Functions An Alternative Specification In order to estimate each function, we multiplied or added a random term to each specification f ( x 1 , x 2 ) = α 0 x α 1 1 x α 2 2 e u ln ( f ( x 1 , x 2 )) = ˜ α 0 + α 1 ln ( x 1 ) + α 2 ln ( x g ( x 1 , x 2 ) = a 0 + a 1 x 1 + a 2 x 2 + A 11 x 2 1 + 2 A 12 x 1 x 2 + A 22 x 2 2 + ν (2) Just and Pope discuss three different specifications of the stochastic production functions y = F 1 ( X ) = f ( X ) e E [ ] = 0 y = F 2 ( X ) = f ( X ) E [ ] = 1 y = F 3 ( X ) = f ( X ) + E [ ] = 0 (3) Charles B. Moss The Stochastic Nature of Production: Lecture VII
Outline Stochastic Production Functions Consistent Estimation Panel Data Specification Just and Pope Propositions Individual Functions An Alternative Specification Each of these specifications has “problematic” implications.

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