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A New Empirical Output Allocation Model for the Competitive Multiproduct Firm
Author(s) -
Seale James L.,
Onel Gulcan,
Zhu Manhong
Publication year - 2016
Publication title -
economic papers: a journal of applied economics and policy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.245
H-Index - 19
eISSN - 1759-3441
pISSN - 0812-0439
DOI - 10.1111/1759-3441.12150
Subject(s) - economics , production (economics) , econometrics , profit (economics) , microeconomics , independence (probability theory) , mathematical economics , computer science , mathematics , statistics
In this paper, based on Laitinen and Theil's (1978) theoretical model, we formulate an empirical output allocation model illustrating supply decisions of a profit‐maximising multiproduct firm. While theoretically elegant, Laitinen and Theil's (1978) output allocation model has never been formulated empirically in its general form due to the complexity of its nonlinear price deflator indexes. We close this gap in the literature by mathematically deriving the empirically tractable counterpart of the output allocation model. Our model does not rely on restrictions such as input–output separability or output independence, and it can easily be implemented by practitioners using standard econometric methods. We empirically illustrate the model using data constructed based on different production and cost functions.