Using Empirical Bayes on three country panels, the authors estimate firm-specific Cobb-Douglas and CES technologies and report large heterogeneity in output elasticities plus a strong negative correlation between factor-neutral productivity and returns to scale.
Rational Expectations in Empirical Bayes
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abstract
We propose a principled framework for nonparametric empirical Bayes (EB) estimation, based on the idea that the prior should be consistent with the observed posterior and that Bayesian updating should be stable. Focusing on discretized priors, we characterize EB estimators as fixed points of a posterior belief operator. We establish the uniqueness of such fixed points and illustrate how the approach improves transparency and interpretability in standard EB settings, including a recent model of discrimination.
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econ.GN 1years
2024 1verdicts
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Inter-firm Heterogeneity in Production
Using Empirical Bayes on three country panels, the authors estimate firm-specific Cobb-Douglas and CES technologies and report large heterogeneity in output elasticities plus a strong negative correlation between factor-neutral productivity and returns to scale.