Working Paper: NBER ID: w16221
Authors: Jordi Jaumandreu; Jacques Mairesse
Abstract: This paper develops a simple framework to estimate the parameters of the production function together with the elasticity of the demand for the output and the impact of demand and cost shifters. The use of this framework helps, in the first place, to treat successfully the difficult problem of the endogeneity of input quantities. But it also provides a natural way to assess the welfare effects of firms' innovative actions by estimating their impact on both cost and demand. We show that the total current period (static) welfare gains of introducing a process or a product innovation are, on average, about 1.6% and 4%, respectively, of the value of the firm's current sales. The increase in consumer surplus amounts to two- thirds of these gains in the first case and half in the second.
Keywords: Innovation; Welfare; Production Function; Demand Elasticity; Cost Shifters
JEL Codes: C33; D21; D24; D62; O31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| process innovations (O31) | cost reductions (D61) |
| cost reductions (D61) | productivity (O49) |
| productivity (O49) | consumer surplus (D46) |
| product innovations (O35) | demand (R22) |
| demand (R22) | consumer surplus (D46) |