Econometria

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Econometria

© All Rights Reserved

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Supply

Walter Sosa-Escudero

Econ 507. Econometric Analysis. Spring 2009

Walter Sosa-Escudero

(2000).

Problem: returns to scale in a regulated industry (electric

power supply). See Hayashi for a discussion of the underlying

institutional framework.

Data: 145 in 44 states.

Variables: total costs, factor prices (wage rate, price of fuel,

and the rental price of capital), and output.

Walter Sosa-Escudero

Factor prices interact with output.

Cobb-Douglas technology:

Qi = A1 x1i1 x2i2 x3i4

Qi : output

xj : factors

Ai : firm heterogeneity: unobservable differences in

production efficiency.

Walter Sosa-Escudero

Cost function:

1/r /r /r /r

Taking logs:

ln T C1 = i +

1

1

2

3

ln Qi +

ln p1i +

ln p2i +

ln p3i ,

r

r

r

r

i ln [r (11 22 33 )]

The linear econometric model is:

ln T C1 = 1 + 2 ln Qi + 3 ln p1i + 4 ln p2i + 5 ln p3i + i

with

2 = 1/r, 3 = 1 /r, 4 = 2 /r, 5 = 4 /r.

E(i ), i i , so E(i ) = 0.

Walter Sosa-Escudero

Linearity: is a consequence of the Cobb-Douglas tecnology (in

logs).

Strict exogeneity: factor prices are given to the firm

independently of efficiency. Ouput: if prices are set

independently of efficiency, Ok. If prices are set to cover

costs: unobserved efficiency is related to ouput.

No multicollinearity: Ok

Firm spillovers might harm the no-serial correlation

assumption.

Heteroskedasticity very likely to be present. Careful.

Walter Sosa-Escudero

3 + 4 + 5 = 1,

a consequence of r 1 + 3 + 3 . This is a testable linear

restriction.

If we set 5 = 1 3 4 , replacing in the original model, the

restricted model is

p1i

p2i

T C1

= 1 + 2 ln Qi + 3 ln

+ 4 ln

+ i

ln

pi3

pi3

pi3

Walter Sosa-Escudero

Unrestricted model:

Estimate Std. Error t value Pr(>|t|)

(Intercept) -3.56651

1.77938 -2.004

0.047 *

lq

0.72091

0.01743 41.352 < 2e-16 ***

lpl

0.45596

0.29980

1.521

0.131

lpf

0.42581

0.10032

4.244 3.97e-05 ***

lpk

-0.21515

0.33983 -0.633

0.528

--Signif. codes: 0 *** 0.001 ** 0.01 * 0.05 . 0.1

1

Residual standard error: 0.3923 on 140 degrees of freedom

Multiple R-squared: 0.926,

Adjusted R-squared: 0.9239

F-statistic: 437.9 on 4 and 140 DF, p-value: < 2.2e-16

Walter Sosa-Escudero

Restricted model:

Estimate Std. Error t value Pr(>|t|)

(Intercept) -4.63607

0.89499 -5.180 7.52e-07

lq

0.72134

0.01739 41.477 < 2e-16

lpln

0.60647

0.20724

2.926

0.004

lpfn

0.41437

0.09878

4.195 4.81e-05

--Signif. codes: 0 *** 0.001 ** 0.01 * 0.05 . 0.1

***

***

**

***

1

Multiple R-squared: 0.9272,

Adjusted R-squared: 0.9256

F-statistic: 598.3 on 3 and 141 DF, p-value: < 2.2e-16

Walter Sosa-Escudero

How would you test H0 : 3 + 4 + 5 = 1? (do it).

R2 = 0.926 high or low?

Multicolinearity

cor(cbind(lq,lpl,lpf,lpk))

lq

lpl

lpf

lpk

lq

1.00000000 0.02350778 -0.1689466 -0.09877366

lpl 0.02350778 1.00000000 0.3337830 -0.19015184

lpf -0.16894664 0.33378301 1.0000000 0.13090722

lpk -0.09877366 -0.19015184 0.1309072 1.00000000

Walter Sosa-Escudero

Coefficients:

Estimate Std. Error t value Pr(>|t|)

lqs 0.72091

0.01719

41.94

<2e-16 ***

--Signif. codes: 0 *** 0.001 ** 0.01 * 0.05 . 0.1

Multiple R-squared: 0.9243,

Adjusted R-squared: 0.9238

F-statistic: 1759 on 1 and 144 DF, p-value: < 2.2e-16

Walter Sosa-Escudero

Walter Sosa-Escudero

Walter Sosa-Escudero

FWLT Fit

Walter Sosa-Escudero

Residuals

Walter Sosa-Escudero

(Intercept)

lq

lpln

lpfn

I(lq^2)

I(lpln^2)

I(lpfn^2)

I(lq * lpln)

I(lq * lpfn)

I(lpln * lpfn)

2.141043 14.231399

0.150 0.880638

-1.020659

0.374418 -2.726 0.007262 **

-0.986754

6.708450 -0.147 0.883279

0.438692

2.830667

0.155 0.877070

0.031975

0.004993

6.404 2.32e-09 ***

-0.187534

0.813741 -0.230 0.818084

-0.221966

0.176251 -1.259 0.210068

-0.060283

0.087892 -0.686 0.493970

-0.153918

0.044745 -3.440 0.000775 ***

0.061019

0.645043

0.095 0.924776

Multiple R-squared: 0.493,

Adjusted R-squared: 0.4592

F-statistic: 14.58 on 9 and 135 DF, p-value: 2.653e-16

> 145*summary(auregw)$r.squared

[1] 71.48219

> qchisq(0.95,9)

[1] 16.91898

Walter Sosa-Escudero

Estimate Std. Error t value Pr(>|t|)

(Intercept) 0.77486

0.09999

7.749 1.56e-12 ***

lq

-0.09544

0.01464 -6.517 1.14e-09 ***

Residual standard error: 0.3361 on 143 degrees of freedom

Multiple R-squared: 0.229,

Adjusted R-squared: 0.2236

F-statistic: 42.48 on 1 and 143 DF, p-value: 1.142e-09

> 145*summary(auregk)$r.squared

[1] 33.20744

> qchisq(0.95,1)

[1] 3.841459

Walter Sosa-Escudero

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