Imposing and Testing Curvature Conditions on a Box-Cox Cost Function

Bertrand Koebel, Martin Falk and Francois Laisney

Journal of Business & Economic Statistics, 2003, vol. 21, issue 2, 319-35

Abstract: We present a new method for imposing and testing concavity of cost functions using asymptotic least squares, which can be easily implemented even for nonlinear cost functions. We provide an illustration for a (generalized) Box-Cox cost function with six inputs: capital, labor disaggregated in three skill levels, energy, and intermediate materials. We present a parametric concavity test and compare price elasticities when curvature conditions are imposed versus when they are not. Although concavity is statistically rejected, estimates are not very sensitive to its imposition. We find stronger substitution between the different type of labor than between any other two inputs.

Date: 2003
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Working Paper: Imposing and testing curvature conditions on a Box–Cox cost function (2003)
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