Panel Data Estimates of the Production Function and Product and Labor Market Imperfections

59 Pages Posted: 29 Jul 2007

See all articles by Sabien Dobbelaere

Sabien Dobbelaere

Vrije Universiteit Amsterdam - Department of Economics; Tinbergen Institute; IZA Institute of Labor Economics

Jacques Mairesse

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST); Maastricht University - United Nations and Maastricht Economic Research Institute on Innovation and Technology (UNU-MERIT); National Bureau of Economic Research (NBER)

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Date Written: July 2007

Abstract

Embedding the efficient bargaining model into the Hall (1988) approach for estimating price-cost margins shows that both imperfections in the product and labor markets generate a wedge between factor elasticities in the production function and their corresponding shares in revenue. This article investigates these two sources of discrepancies both at the industry and the firm level using an unbalanced panel of 10646 French firms in 38 manufacturing industries over the period 1978-2001. By estimating standard production functions, we are able to derive estimates of average price-cost mark-up and rent sharing parameters. Our industry-level results indicate that industry differences in these parameters are quite sizeable. To determine the degree of true firm-level heterogeneity, we adopt the Swamy (1970) methodology. The Swamy robust estimates of true dispersion show sizeable within-industry firm heterogeneity. Firm size, capital intensity, distance to the industry technology frontier and investing in R&D seem to account for part of this heterogeneity.

Keywords: rent sharing, price-cost mark-ups, production function, panel data

JEL Classification: C23, D21, J51, L13

Suggested Citation

Dobbelaere, Sabien and Mairesse, Jacques, Panel Data Estimates of the Production Function and Product and Labor Market Imperfections (July 2007). ECB Working Paper No. 782. Available at SSRN: https://ssrn.com/abstract=999533

Sabien Dobbelaere (Contact Author)

Vrije Universiteit Amsterdam - Department of Economics ( email )

De Boelelaan 1105
NL- Amsterdam, NL-1081 HV
Netherlands
0031 20 598 28 74 (Phone)

Tinbergen Institute

Keizersgracht 482
NL- Amsterdam, NL-1017 EG
Netherlands

IZA Institute of Labor Economics

P.O. Box 7240
D- Bonn, 53072
Germany

Jacques Mairesse

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

Maastricht University - United Nations and Maastricht Economic Research Institute on Innovation and Technology (UNU-MERIT)

Keizer Karelplein 19
6211 TC Maastricht
Netherlands

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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