π― Job Market Paper Alert π―
Private businesses make up 50% of sales & profits and are the main wealth component of the wealthiest households. So, what is their value? Well, that's difficult, since they're not listed: their value is unobservable by definition!
My #EconJMP tackles this problem 1/
Private businesses make up 50% of sales & profits and are the main wealth component of the wealthiest households. So, what is their value? Well, that's difficult, since they're not listed: their value is unobservable by definition!
My #EconJMP tackles this problem 1/
Comments
Then, we know what to do: find some IV regression, then the fitted values of that IV must be free from measurement error! 2/
1. Find regression that relates market value to some other variable
2. Find instruments to filter measurement error
3. Under the identifying assumptions, the fitted values are then error-free --> these I call the "true" market value
3/
But this holds more generally: I show that even when firms have markups and/or decreasing returns to scale, firm value is approx linear in their capital stock
4/
We can use time-series instruments! I use the great paper by Griliches & Hausman (1986, JEctrs): *deviations* betw panel estimators are instruments! 5/
But this is 2 equations in 2 unknowns (Ξ² and variance of ΞΎ)! Intuitively, the differences in bias betw the regs gives identifying information 6/
Then, fitted values from this IV/GMM regression will be error-free market values 7/