A micro-econometric model of a short run cost function with unobserved heterogeneity

Prentice, David (2000): A micro-econometric model of a short run cost function with unobserved heterogeneity.

Abstract

Unobserved plant level heterogeneity and discrete production processes can produce problems for estimation. A structural model of discrete production decisions by heterogeneous plants is constructed and, as a case study, estimated for the U.S. Portland cement industry. A new estimator is proposed to handle the discrete production process – for which the ordered probit is a special case. Data on firm survival and exit are used to adjust all input requirement coefficients for unobserved heterogeneity. The structural model is successfully estimated. Differences between many estimated coefficients and independent estimates from external sources are statistically insignificant.

• Item Type: MPRA Paper
• Language: English
• Keywords: marginal cost; portland cement; ordered probit
• Subjects: L - Industrial Organization > L6 - Industry Studies: Manufacturing > L61 - Metals and Metal Products ; Cement ; Glass ; Ceramics; D - Microeconomics > D2 - Production and Organizations > D24 - Production ; Cost ; Capital ; Capital, Total Factor, and Multifactor Productivity ; Capacity; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C25 - Discrete Regression and Qualitative Choice Models ; Discrete Regressors ; Proportions ; Probabilities

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