Knowledge that Transforms

1. IN MANY empirical investigations the geometric mean of observed factor shares serves as an estimator of the factor exponents in a Cobb-Douglas2 production function. This particular estimator is due to Klein [7, p. 194]. It is here shown that such an estimator is biased. Under certain conditions an alternative estimator is derived which is unbiased, sufficient, efficient, and consistent.

The aggregate quarterly consumption functions suggested by DuesenberryEckstein-Fromm (DEF) and by Zellner are recomputed and extended through 1960 on the basis of more recent data. While the actual fit of the DEF consumption function is substantially lower than previously reported, the coefficient estimates remain reasonably stable throughout the period. The Zellner consumption function fits well but gives rather low estimates of the long run marginal propensity to consume and a rather high and hard to interpret coefficient for the liquid assets variable. It is found also that the Durbin-Watson statistic presents a misleading picture of the amount of actual serial correlation in the residuals of these functions and an alternative nonparametric test is suggested.