Production function estimation in Stata using the Ackerberg-Caves-Frazer method

Abstract

We present a new e-class command, acfest, that implements the method of Ackerberg, Caves, and Frazer (2015, Econometrica 83: 2411-2451) to estimate production functions. This method deals with the functional dependence problems that may arise in the methods proposed by Olley and Pakes (1996, Econometrica 64: 1263-1297) and, particularly, Levinsohn and Petrin (2003, Review of Economic Studies 70: 317-341) (implemented in Stata by Yasar, Raciborski, and Poi [2008, Stata Journal 8: 221-231] and Petrin, Poi, and Levinsohn [2004, Stata Journal 4: 113-123], respectively). In particular, the acfest command yields (nonlinear, robust) generalized method of moments estimates using a Mata function and two specification tests (Wald and Sargan-Hansen). After estimation, predict provides the estimated productivity of the firms in the sample.