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A Variance Component Approach To Industry Cost Analysis

Published online by Cambridge University Press:  28 April 2015

Richard L. Kilmer  and
Daniel S. Tilley
Richard L. Kilmer
Affiliation:
Food and Resource Economics Department, University of Florida
Daniel S. Tilley
Affiliation:
Food and Resource Economics Department, University of Florida Florida Department of Citrus
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Extract

Cost and volume data used in long-run cost studies often are observations from a single cross-section on firms or the average of multiple observations for each firm [1, 3, 5]. Averaging costs and volume over a time series is designed to eliminate the effect of short-run disturbances on the estimated long-run cost function. This practice results in a loss of information on the cost effects of short-run disturbances and significantly reduces the potential degrees of freedom that could result from pooling cross-sectional time-series data. In order to pool data, binary variables for each firm previously have been used to account for short-run fixed firm effects [4].

Type
Research Article
Information
Journal of Agricultural and Applied Economics , Volume 11 , Issue 2 , December 1979 , pp. 35 - 40
Copyright
Copyright © Southern Agricultural Economics Association 1979

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References

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