Events

Prof. Frederic Warzynski
Professor
Aarhus University

In this paper we provide a methodology that jointly studies production and de-
mand for multi-product rms using detailed firm-product level data from Denmark.
We estimate marginal cost by combining production function estimation with a cost
function that allows for quasi-fixed inputs. We use a discrete choice demand model
that extends insights from Berry, Levinsohn and Pakes (1995) to obtain a measure of
the demand shock (quality). We estimate the relationship between product (process)
R&D and quality (efficiency), and nd strong evidence that process innovation is re-
lated to higher efficiency, while product innovation is associated with higher product
quality. We discuss the welfare implications of these two distinct innovation activities.