Production Functions in State-Space: An Economist's Lament.

While the estimation of production functions has been a standard approach in economics since the 1950s, several facets of these empirical models remain problematic. Two facets that raise particular concerns are the implications of the production specification for analysis of decisions under risk and uncertainty, and the impact of changes in soil characteristics on the adequacy of typical specifications of the production process. This analysis derives the implications for each of these difficulties within a state-space representation. This paper then applies a quantile regression approach to address these facets.