Springer Nature is making SARS-CoV-2 and COVID-19 research free. View research | View latest news | Sign up for updates

Estimating total factor productivity using parametric, nonstochastic cost frontiers

  • 88 Accesses

  • 4 Citations


The standard approach to measuring total factor productivity can produce biased results if the data are drawn from a market that is not in long-run competititve equilibrium. This article presents a methodology for adjusting data on output and variable inputs to the values they would have if the market were in long-run competitive equilibrium, given the fixed inputs and input prices. The method uses nonstochastic, parametric translog cost frontiers and calculates equilibrium values for output and varible inputs using an iterative linear programming procedure. Data from seven industries for 1970–1979 are used to illustrate the methodology.

This is a preview of subscription content, log in to check access.


  1. Aigner, D.J. and S.F. Chu [1968]. “On Estimating the Industry Production Function.”American Economic Review 58, 826–839.

  2. Baumol, William J., Sue Anne Batey Blackman, and Edward N. Wolff. [1989].Productivity and American Leadership. Cambridge, MA: The MIT Press.

  3. Berndt, Ernst R. and Melvyn A. Fuss. [1986]. “Productivity Measurement with Adjustments for Variations in Capacity Utilization, and Other Forms of Temporary Equilibrium.”Journal of Econometrics 33, 7–30.

  4. Berndt, Ernst R. and David O. Wood. [1975]. “Technology, Prices, and the Derived Demand for Energy.”The Review of Economics and Statistics 57, 259–268.

  5. Caves, Richard E. and David R. Barton. [1990].Efficiency in U.S. Manufacturing Industries. Cambridge, MA: The MIT Press.

  6. Champion, Elinor J. and Charles O. Thorpe, Jr. [1987]. “Census Bureau Survey of Capacity Utilization.” Presented at the Conference on Capacity Utilization, December 1987.

  7. Dertouzos, Michael L., Richard K. Lester, Robert M. Solow, and the MIT Commission on Industrial Productivity. [1989].Made in America: Regaining the Productive Edge. Cambridge, MA: The MIT Press.

  8. Diewert, W.E. [1976]. “Exact and Superlative Index Numbers.”Journal of Econometrics 4, 115–145.

  9. Diewert, W.E. [1980]. “Capitol and the Theory of Productivity Measurement.”American Economic Review 70, 260–267.

  10. Färe, Rolf. [1984]. “The Existence of Plant Capacity.”International Economic Review 25, 209–214.

  11. Färe, Rolf, Shawna Grosskopf, and Edward C. Kokkelenberg. [1989]. “Measuring Plant Capacity, Utilization and Technical Change: A Nonparametric Approach.”International Economic Review, Vol. 30, pp. 655–666.

  12. Farrell, M.J. [1957]. “The Measurement of Productive Efficiency.”Journal of the Royal Statistical Society, Series A, General 120, 253–281.

  13. Forsund, Finn R., C.A. Knox Lovell, and Peter Schmidt. [1980]. “A Survey of Frontier Production Functions and of Their Relationship to Efficiency Measurement.”Journal of Econometrics 13, 5–26.

  14. Greene, William H. [1980]. “Maximum Likelihood Estimation of Econometric Frontier Functions.”Journal of Econometrics 13, 27–56.

  15. Helliwell, John F., and Alan Chung. [1986]. “Aggregate Output with Variable Rates of Utilization of Employed Factors.”Journal of Econometrics 33, 285–310.

  16. Hulten, Charles R. [1986]. “Productivity Change, Capacity Utilization, and the Sources of Economic Growth,”Journal of Econometrics 33, 31–50.

  17. Jorgenson, Dale, Frank Gollop, and Barbara Fraumeni. [1987].Productivity and U.S. Economic Growth, Cambridge: Harvard University Press.

  18. Morrison, Catherine J. [1986]. “Productivity Measurement with Non-Static Expectations and Varying Capacity Utilization.”Journal of Econometrics 33, 51–74.

  19. Nadiri, M. Ishaq. [1970]. “Some Approaches to the Theory and Measurement of Total Factor Productivity.”Journal of Economic Literature 8, 1137–1177.

  20. Schmidt, Peter. [1975]. “On the Statistical Estimation of Parametric Frontier Production Functions.”Review of Economics and Statistics 58, 238–239.

  21. Slade, Margaret E. [1986]. “Total-Factor-Productivity Measurement When Equilibrium Is Temporary.”Journal of Econometrics 33, 75–95.

Download references

Author information

Additional information

The editor for this paper was William H. Greene.

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Serot, D.E. Estimating total factor productivity using parametric, nonstochastic cost frontiers. J Prod Anal 4, 407–418 (1993). https://doi.org/10.1007/BF01073548

Download citation


  • Standard Approach
  • Total Factor Productivity
  • Factor Productivity
  • Input Price
  • Competitive Equilibrium