Fellow's Opinion: Tastes and Technology, Curvature is not Sufficient for Regularity

William Barnett ()

Econometrics from EconWPA

Abstract: In specifications of tastes and technology, econometricians often impose curvature globally, but monotonicity only locally or not at all. In fact monotonicity rarely is even mentioned in that literature. But without satisfaction of both curvature and monotonicity, the second order conditions for optimizing behavior fail, and duality theory fails. The resulting first order conditions, demand functions, and supply functions become invalid. Although unconstrained specifications of technology are more likely to produce violations of curvature than monotonicity, I believe that induced violations of monotonicity become common, when curvature alone is imposed. Hence the now common practice of equating regularity with curvature is not justified. Much of the research that supports this Journal of Econometrics Fellow's Opinion Article is forthcoming in a special issue of Econometric Reviews.

Keywords: curvature; technology; regularity; monotonicity (search for similar items in EconPapers)
JEL-codes: C3 E41 G12 C43 C22 (search for similar items in EconPapers)
Date: Written
Note: Type of Document - Microsoft Word; prepared on IBM PC; to print on HP; pages: 5 ; figures: included. This article is a Journal of Econometrics Fellow's Opinion Article forthcoming in that journal. Much of the research that supports this opinion is forthcoming in an Econometric Reviews article coauthored with Meenakshi Pasupathy
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