How Reliable is Duality Theory in Empirical Work

摘要: The Neoclassical theory of production establishes a dual relationship between the profit value function competitive firm and its underlying technology. This relationship, commonly referred to as duality theory, has been widely used in empirical work estimate parameters, such elasticities returns scale, without requirement explicitly specifying We generate pseudo-dataset by Monte Carlo simulations, which starting from known yield dataset with main characteristics U.S. agriculture terms unobserved heterogeneity, decisions under uncertainty, unexpected price shocks, endogenous prices, output input aggregation, measurement error variables, omitted variables. Econometric estimation conducted mentioned pseudo-data show that initial parameters are not precisely recovered therefore inaccurately estimated. deviation own- cross-price their true values, given our parameter calibration, ranges 6% 229%, an average 71%. Also, own-price imprecisely elasticities. Sensitivity analysis shows results still hold for different sources levels noise, well sample size estimation.