Leveraging Subjective Expectations for Production Functions

Norris Keiller, de Paula and Van Reenen (NPR) (2024) propose estimating production functions using firms' subjective expectations of future output and inputs; data which are becoming increasingly available in surveys. This note compares their proposed estimator to traditional dynamic panel data (e.g., Blundell and Bond, 2000) and proxy variable methods (e.g., Olley and Pakes, 1996). While NPR allows for nonlinear productivity processes, we discuss commonalities with the former when those processes are linear. We note that NPR may be more robust to oligopolistic competition than the latter since it does not employ input demand relations to proxy for productivity.