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Abstract
Both the dynamic and stochastic aspects of economic life are increasingly
being recognized and incorporated in current analytics. In this paper we
examine these aspects in production models, with the aim of achieving the
following goals: (i) Unifying the various existing efforts into one more
general analytic framework; (ii) Evaluating the tractability of the two
dominant functional forms in the presence of dynamics and uncertainty;
(iii) Exhaustively analyzing the estimation issues of the general form in
stochastic multiperiod and multistage problems with observable and
unobservable intermediate outputs; (iv) Determining the conditions under
which production function and factor demand estimation is separable, i.e.,
when knowledge of the production process is not required for efficient factor
demand estimation, and vice-versa; (v) Examining the existence of analytic
factor demands in the general dynamic stochastic model; and finally,
(vi) Providing alternative conditions that lead to an assortment of
tractable, estimable models for empirical use.
We are encouraged by the conclusion that, subject to avoiding certain
pitfalls, the general production model can be extended to include both
multiple periods and uncertainty, with increased empirical relevance.