A note on joint estimation of scale economies and productivity growth parameters

In applied research it is common to estimate complete production models, obtain measures of scale economies and total factor productivity growth and then regress such measures on exogenous variables. Such procedures result in inconsistent estimates of technological as well as regression parameters: estimation of total factor productivity and scale economies in the "rst step, does not take into account that these measures depend on exogenous variables in the second step. Therefore, their dependence on exogenous variables is not properly taken into account in the "rst step. The study proposes to estimate jointly the cost function, the share equations as well as total factor productivity and scale economies measures, using full system estimation to account for all the restrictions implied by their endogeneity. The approach is illustrated using data from British, French, and German railways. ( 2001 Elsevier Science B.V. All rights reserved.