AEA Papers and Proceedings
ISSN 2574-0768 (Print) | ISSN 2574-0776 (Online)
A Generalized Control Function Approach to Production Function Estimation
AEA Papers and Proceedings
(pp. 483–489)
Abstract
We develop a generalized control function approach to production function estimation. Our approach accommodates settings in which productivity evolves jointly with other unobservable factors such as latent demand shocks and the invertibility assumption underpinning the traditional proxy variable approach fails. We provide conditions under which the output elasticity of the variable input—and hence the markup—is nonparametrically point identified. A Neyman orthogonal moment condition ensures oracle efficiency of our GMM estimator. A Monte Carlo exercise shows a large bias for the traditional approach that decreases rapidly and nearly vanishes for our generalized control function approach.Citation
Doraszelski, Ulrich, and Lixiong Li. 2026. "A Generalized Control Function Approach to Production Function Estimation." AEA Papers and Proceedings 116: 483–489. DOI: 10.1257/pandp.20261107Additional Materials
JEL Classification
- C51 Model Construction and Estimation
- D21 Firm Behavior: Theory
- D24 Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity