A Helicopter Tour of Some Underlying Issues in Empirical Industrial Organization

This review considers conceptual issues underlying empirical work on markets. It is divided in three parts. The first part reviews the analysis of demand and equilibrium in retail markets and then considers recent advances in the analysis of markets that require different assumptions: markets where adverse selection and moral hazard may be important, vertical markets with bargaining, and markets wherein a centralized allocation mechanism replaces prices. The second part considers the analysis of cost and production. It reviews the simultaneity and selection issues in production function estimation and then considers the distinction between revenue- and quantity-generating functions and its implications for the analysis of markups, as well as the empirical analysis of fixed costs and its implications for the analysis of product repositioning. The review concludes by considering issues that arise due to the complexity of the empirical analysis of market dynamics and appropriate ways of dealing with them.

The Production Function of the Hospitals in Iran: A Systematic Review

Context: Hospitals are the most important section in relation to health economy, accounting for 50-80% of the health budget in developing countries. Objectives: The present study aimed to estimate the production functions of the hospitals in Iran. Data Sources: This systematic review was conducted via searching in the international databases of Scopus, ISI, PubMed and Persian databases of IDML, SID, MagIran for access to data in 2019 with no time limits using keywords such as hospitals, hospital performance, hospital performance assessment, production function estimation, and Iran. The required data on the authors, year of publication, language of publication, and number of hospitals were extracted from the articles using a checklist. The extracted data were categorized and interpreted in the Excel software. Results: The initial search yielded 334 articles, which were extracted and reviewed based on their title, abstract, and elimination of the duplicates. In total, 12 articles were obtained for the final analysis. The mean elasticity of the inputs for physicians, nurses, active beds, and other staff was 0.22, 0.55, 0.64, and 0.36, respectively. In addition, the marginal production of the factors for physicians, nurses, active beds, and other staff was 53.22, 32.56, 41.10, and 38.56, respectively. The marginal production of all the inputs was positive. Conclusions: Considering the positive marginal production of all the inputs, it is suggested that the utilization of the inputs increase due to their elasticity in order to improve efficiency, which is a priority for using active hospital bed. It is also advisable to assess various sections of each hospital rather than on a hospital level and evaluate productivity and efficiency.

Intangibles and innovation-labor-biased technical change

PurposeThis paper analyzes the productivity effects of structural capital such as research and development (R&D) and organizational capital (OC). Innovation work also produces innovation-labor-biased technical change (IBTC) and knowledge spillovers. Analyses use full register-based dataset of Finnish firms for the period 1994–2014 from Statistics Finland.Design/methodology/approachIntangibles are derived from the labor costs of innovation-type occupations using linked employer-employee data. The approach is consistent with National Accounting and offered as one method in OECD (2010) and applied in statistical offices, e.g. in measuring software. The EU 7th framework Innodrive project 2008–2011 extended this method to cover R&D and OC.FindingsMethodology is implementable at firm-level and offers way to link personnel reporting to intangible assets. The OC-IBTC as well as total resources allocated to OC are relevant for productivity growth. The R&D stock is relatively higher but R&D-IBTC is smaller than OC-IBTC. Public policy should, besides technology policy, account for OC and OC-IBTC and related knowledge spillovers in the industries that are most important among the SMEs (low market-share-firms).Research limitations/implicationsThe data are based on remote access to Statistics Finland; the data cannot be disseminated.Originality/valueIntangible assets are measured from innovation work that encompasses not only R&D work. IBTC is proxied in production function estimation by relative compensations on IA work. The non-competing nature of IAs is captured by IA knowledge spillovers. The sample sizes are much higher than in earlier studies on horizontal knowledge spillovers (such as for SMEs,) thus bringing additional generality to the results.

Does the pursuit of more complex products contribute to the productivity of exporting firms?

Purpose The purpose of this paper is to contribute to the literature on learning by exporting by investigating whether an increase in the complexity of exported products contributes to higher productivity at the firm level. Design/methodology/approach The study implements an empirical analysis for Estonian manufacturing firms involved in exporting for the period 2008–2014, adding product complexity as an explanatory variable in the production function estimation. An increase in product complexity is interpreted as an indirect proxy for an increase in firm capabilities, capturing both tangible and intangible elements of competitiveness and reflecting the learning effects. Findings A relatively weak correlation between product complexity and productivity was found using a simple OLS estimation – exporters with higher product complexity have generally higher productivity levels. Somewhat surprisingly, no evidence for the learning by exporting was found among exporters, meaning that the increased complexity does not seem to be a channel for productivity upgrading. This result seems to be robust, irrespective of estimation methods and sampling preferences. Research limitations/implications The sample is representative of exporting firms. Practical implications The results show that the pursuit to more complex product does not necessarily contribute to productivity for exporting firms. The findings suggest that the firm-level upgrading due to increased export orientation is likely to take place through the other channels like moving up in global value chains and differentiating by product quality. Originality/value This is one of the first papers to investigate the effect of product complexity on productivity at a firm level. The results provide new insights into the learning-by-exporting hypothesis, with focus on potential learning among the existing exporters.

Do Increasing Markups Matter? Lessons from Empirical Industrial Organization

This article considers the recent literature on firm markups in light of both new and classic work in the field of industrial organization. We detail the shortcomings of papers that rely on discredited approaches from the “structure-conduct-performance” literature. In contrast, papers based on production function estimation have made useful progress in measuring broad trends in markups. However, industries are so heterogeneous that careful industry-specific studies are also required, and sorely needed. Examples of such studies illustrate differing explanations for rising markups, including endogenous increases in fixed costs associated with lower marginal costs. In some industries there is evidence of price increases driven by mergers. To fully understand markups, we must eventually recover the key economic primitives of demand, marginal cost, and fixed and sunk costs. We end by discussing the various aspects of antitrust enforcement that may be of increasing importance regardless of the cause of increased markups.

Theory and Practice of Total-Factor Productivity Estimation: The Control Function Approach using Stata

Alongside instrumental-variables and fixed-effects approaches, the control function approach is the most widely used in production function estimation. Olley and Pakes (1996, Econometrica 64: 1263–1297), Levinsohn and Petrin (2003, Review of Economic Studies 70: 317–341), and Ackerberg, Caves, and Frazer (2015, Econometrica 83: 2411–2451) have all contributed to the field by proposing two-step estimation procedures, whereas Wooldridge (2009, Economics Letters 104: 112–114) showed how to perform a consistent estimation within a single-step generalized method of moments framework. In this article, we propose a new estimator based on Wooldridge's estimation procedure, using dynamic panel instruments à la Blundell and Bond (1998, Journal of Econometrics 87: 115–143), and we evaluate its performance by using Monte Carlo simulations. We also present the new command prodest for production function estimation, and we show its main features and strengths in a comparative analysis with other community-contributed commands. Finally, we provide evidence of the numerical challenges faced when using the Olley–Pakes and Levinsohn–Petrin estimators with the Ackerberg–Caves–Frazer correction in empirical applications, and we document how the generalized method of moments estimates vary depending on the optimizer or starting points used.