Gaussian Process: A Smooth and Flexible Approach to Estimating Index Complementarities in Organizational Economics

Kieron J. Meagher, Rodney W. Strachan


A common question in organizational economics is how does a bundle or index of managerial practices or characteristics impact on firm or employee level outcomes. The presence of complementarities is of particular interest but we argue should not be restricted to particular functional forms like the multiplicative ‘interaction’ of slope coefficients. As an alternative we propose the use of Gaussian processes to estimate a smooth non-linear function of the management practices index/bundle.

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