Specification and Estimation of Production Functions Involving Damage Control Inputs: A Two‐Stage, Semiparametric Approach

Productivity assessment of damage control inputs (such as pesticides) is complicated because their effect depends on the exposure to damage agents (such as pests). We discuss some open specification and estimation issues. The contribution is threefold. First, we elaborate the separability conditions for the damage control function and production function. Second, we employ a two‐stage semiparametric technique to combine attractive features of both nonparametric and parametric approaches. Third, we model the interaction between pest exposure and damage control inputs by using slope dummies. An application to productivity analysis of small scale Bt cotton production in China illustrates the approach.