Work in progress
Production Functions with Noisy Data: A Flexible Cost Share Approach (JMP)
formerly titled "The Cost Share Approach to Production Functions"
Abstract: Firm-level output elasticities, productivity, and markups underpin empirical work on market power, misallocation, and the labor share. With market power and revenue data, revenue elasticities do not equal output elasticities; the proxy-variable literature handles this by modeling the demand side and productivity dynamics under restrictive assumptions. Cost-share identification sidesteps the issue and recovers heterogeneous output elasticities, markups, and productivity from the cost-minimization first-order condition alone, trading the proxy-variable restrictions for one, a fixed returns-to-scale parameter. A non-parametric first-stage procedure purges noisy cost-of-capital proxies and delivers a usable cost-of-capital series as a by-product. The framework extends to factor-augmenting technology, drops the returns-to-scale assumption when physical quantities are available, and accommodates known input-market frictions. Applied to Compustat (1962-2024), the estimator mechanically avoids the inconsistencies of past markup estimates, and rejects Cobb-Douglas in every sector-year cell.
Winner of the FJPB Young Economist Prize (JEI 2025)
Empirical Bounds for Weighted Harmonic Means of Price-Cost Markups, with Steve Bond
Abstract: Under the assumptions of constant returns to scale production technologies and competitive input markets, the sum of revenue elasticities across all inputs is the reciprocal of the price-cost markup for a profit-maximising firm. Profit maximisation also implies bounds for arithmetic means of revenue elasticities in a large sample of firms. These bounds are available for both flexible and predetermined inputs, and require data only on revenue shares (i.e. input costs as a share of revenue). Summing over inputs, we thus obtain empirical bounds for harmonic means of price-cost markups. Using company accounts data from Compustat, we calculate these bounds for publicly traded North American firms over the period 1955-2022. Our results are consistent with a modest rise in the sales-weighted harmonic mean of markups since the early 1980s, and a considerable increase in the cross-section dispersion of markups.
Market Power along the Supply Chain of Milk in Great Britain, with Howard Smith
work in progress
We estimate a structural model of the British supply chain of milk that includes dairy farmers, manufacturers, supermarkets, and final consumers. We investigate how surplus is shared along the entire supply chain, and find that farmers face markdowns that are largely captured by supermarket chains through bargaining with manufacturers.
How Input Price Controls Can Fail: How To Test and Fix
work in progress
When estimating production functions, several papers deal with unobserved input prices by using the price of output as a control. I show that this procedure fails when the price of output is measured with error, because the control variable (output price) contains the same error term as the dependent variable (output). When this happens, a (biased) revenue function is estimated instead of the production function, leading to issues in settings with output market power. I show that this bias can be detected from the coefficient on the control variable.