An Econometric Analysis of Skewed Productivity Outcomes
26 Pages Posted: 29 Mar 2008 Last revised: 25 Jun 2009
Date Written: June 28, 2008
Abstract
An econometric model is developed to help explain uncertain yields from processes that generate inherently skewed outcomes. The yield is modeled as the interaction of potential and effort functions, where potential represents maximum yield that would be observed, if the effort was infinite. The potential function is determined by some endogenous factors, and the effort function is determined by an exogenous input and allows for increasing and decreasing marginal returns to effort. A non-linear model incorporating these features is theoretically derived and empirically tested using data on outcomes from sales-tax audits. The results document the superiority of the proposed model in capturing the underlying relationships, and providing a better out-of -sample fit to the data compared to two OLS models. The proposed model can be applied in various business and non-business settings.
Keywords: econometric modeling, forecasting, tax auditing
JEL Classification: C01, C51, C53
Suggested Citation: Suggested Citation
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