Estimating Total Factor Productivity Using Parametric, Nonstochastic Cost Frontiers

Serot, David E.
November 1993
Journal of Productivity Analysis;Nov1993, Vol. 4 Issue 4, p407
Academic Journal
The standard approach to measuring total factor productivity can produce biased results if the data arc drawn from a market that is not in long-run competitive equilibrium. This article presents a methodology for adjusting data on output and variable inputs to the values they would have if the market were in long-run competitive equilibrium, given the fixed inputs and input prices. The method uses nonstochastic, parametric Iranslog cost frontiers and calculates equilibrium values for output and variable inputs using an iterative linear programming procedure. Data from seven industries for 1970-1979 are used to illustrate the methodology.


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