Consequences of Alternative Specifications in Estimation of Cobb-Douglas Production Functions
In estimating parameters of the Cobb-Douglas production function, assuming competition and profit maximization, the estimator to be employed depends on the specification of the behavior of the disturbance term in the production function. If this disturbance term is not transmitted to inputs, that is, if inputs are independent of this disturbance, then the least squares estimator is consistent; if the disturbance is fully transmitted to inputs, then a consistent estimator is…