Production function estimation in Stata using the Olley and Pakes method
Mahmut Yasar
Department of Economics
University of Texas at Arlington
Arlington, TX
[email protected]
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Rafal Raciborski
Department of Political Science
Emory University
Atlanta, GA
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Brian Poi
StataCorp
College Station, TX
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Abstract. Productivity is often computed by approximating the weighted sum of the
inputs from the estimation of the Cobb–Douglas production function. Such
estimates, however, may suffer from simultaneity and selection biases. Olley
and Pakes (1996, Econometrica 64: 1263–1297) introduced a
semiparametric method that allows us to estimate the production function
parameters consistently and thus obtain reliable productivity measures by
controlling for such biases. This study first reviews this method and then
introduces a Stata command to implement it. We show that when simultaneity
and selection biases are not controlled for, the coefficients for the
variable inputs are biased upward and the coefficients for the fixed inputs
are biased downward.
View all articles by these authors:
Mahmut Yasar, Rafal Raciborski, Brian Poi
View all articles with these keywords:
opreg, levpet, production function, bias, simultaneity
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