Multifactor productivity in the Construction Industry Under Imperfect Competition

• The present study suggests a generalization of the standard translog cost function model, incorporating the demand side of the market into the analysis. The main advantage of this generalized model is that it can be used to directly investigate the degree of monopoly power in the market under study, using the Lerner index as the empirical measure of market power. The Swedish construction industry is used as an empirical example of how to apply this method. Within the framework of the neoclassical theory of production, cost and factor demand functions as well as an expression equating marginal cost to marginal revenue are estimated. The paper finds substitutability between capital and labor and between labor and materials, the returns to scale are found to be increasing, while introduction of new technology is found to reduce the total cost of production. Finally, on average, the Lerner index amounts to 15.1% per annum suggesting that the Swedish construction industry possesses some monopoly power in the market for its product. This result also suggests that the results from cost function analysis, not taking the possibility of market power into account, might be biased due to misspecification of the model.

Ämnesord

SAMHÄLLSVETENSKAP  -- Ekonomi och näringsliv -- Nationalekonomi (hsv//swe)

SOCIAL SCIENCES  -- Economics and Business -- Economics (hsv//eng)

Nyckelord

Imperfect competition

Lerner index

translog cost function

productivity analysis

Economics

Nationalekonomi

Publikations- och innehållstyp

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