The inconsistency of common scale estimators when output prices are unobserved and endogenous

Firm-level productivity studies: Illusions and a solution

“…7 Estimation errors introduce another type of problem with φ -type measures, but they do not undo the ones we will focus upon here. Marschak and Andrews (1944) were the first to discuss estimation of production technologies when output is measured in revenue terms; Klette and Griliches (1996) revisit the issue. 8 To see the inverse relationship between output prices and productivity, divide both sides of Eq.…”

“…Melitz (2000) demonstrates one way to incorporate consumer tastes into plant-level performance measures when price and quantity data are unavailable. Assuming Dixit-Stiglitz preferences, and building on Klette and Griliches (1996), he notes that the residuals from a revenue function can be used to infer a "quality-adjusted productivity index," ϕ jt + ω jt . This index provides an appropriate basis for ranking firms' contributions to social surplus.…”

Does competition raise productivity through improving management quality?

“…Consequently, measured TFP typically includes an element of the firm-specific price-cost margin (e.g. Klette and Griliches, 1996). Foster et al (2009) study 11 seven-digit homogeneous goods (including block ice, white pan bread, cardboard boxes and carbon black) where they have access to plant specific output (and input) prices.…”

Firm market value and production technology

“…9 We use sales rather than physical output due to data limitations. Klette and Griliches (1996) discuss the biases that result from the use of sales rather than quantity in production functions estimated by OLS. 10 Using the perpetual inventory method for capital would require deleting twothirds of our sample due to missing data on investment.…”