Autore: Waldmann, Robert
Titolo: Implausible results or implausible data? Anomalies in the construction of value added data and implications for estimates of price-cost markups
Periodico: European University Institute of Badia Fiesolana (Fi). Department of Economics - Working papers
Anno: 1990 - Fascicolo: 27 - Pagina iniziale: 1 - Pagina finale: 22

In “The Relationship Between Price and Marginal Cost in U.S. Industry,” Robert Hall argues that firms in many U.S. industries charge prices higher than marginal cost. He uses a new and controversial method to measure marginal cost comparing the covariance of value added and of labour input with instruments for aggregate demand. The pattern of markups estimated by Hall casts doubt on the validity of this approach. He estimates high markups in unconcentrated non-manufacturing industries as well as in concentrated industries. Reassuringly, the implausible pattern of estimated markups is caused by unreliable methods used to measure value added in most non-manufacturing industries. These data are inappropriate for Hall’s purpose, since they contain measurement errors negatively correlated with one of Hall’s instruments — the price of oil. This biases up Hall’s estimates causing the disturbing pattern. This trivial explanation of the anomalous results reported by Hall relieve doubts about his approach and increase confidence in the evidence for markups reported by Hall and other economists. Unfortunately the unreliability of data on value added by most non-manufacturing industries makes it much more difficult to investigate the determinants of the ratio of price to marginal cost.




Testo completo: http://hdl.handle.net/1814/366

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