ESTIMATING THE CHARACTERISTICS OF HOMOGENEOUS FUNCTIONSUSING FLEXIBLE FUNCTIONAL FORMS

Christopher O'Donnell

No 123713, 2000 Conference (44th), January 23-25, 2000, Sydney, Australia from Australian Agricultural and Resource Economics Society

Abstract: A flexible functional form can provide a second-order approximation to an arbitrary unknown function at a single point. Except in special cases, the parameters of flexible forms will vary from one point of approximation to another. I use this property to show that, in general, if an unknown function is homogeneous then i) Euler's Theorem gives rise to linear equality constraints involving both the data and a set of observation-varying flexible form parameters, ii) the common practice of imposing homogeneity on flexible functional forms is unnecessarily restrictive, and iii) it is possible to obtain estimates of the observation-varying parameters of approximating flexible forms using a Singular Value Decomposition (SVD) estimator. Two illustrations are provided: artificially-generated data is used to estimate the characteristics of a generalised linear production function; and Canadian data is used to estimate the characteristics of a consumer demand system.

Keywords: Research; Methods/Statistical; Methods (search for similar items in EconPapers)
Pages: 32
Date: 2000-01
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aare00:123713

DOI: 10.22004/ag.econ.123713

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