Estimating Production Functions of Multiproduct Firms

Despite the fact that multiproduct firms constitute a considerable share of firms and account for an even greater share of production, virtually all production function estimates are based on the assumption that firms are single-product producers. The single-product assumption is made due to lack of data on input allocation across the various product lines multiproduct firms operate. I provide a method to estimate product-level production functions without observable input allocations. The empirical application and Monte Carlo simulations show that the single-product firm assumption leads to biased parameter and productivity estimates and overestimated productivity differences between firms.

 

Publication info

Series
ETLA Working Papers 37
Date
08.03.2016
Keywords
Multiproduct firm, production function, productivity
ISSN
2323-2420, 2323-2439
JEL
D24, L11, L25
Pages
61
Price
15 €
Availability of print version
Available
Language
English