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On estimation of the CES production function—Revisited

Arne Henningsen and Geraldine Henningsen ()

Economics Letters, 2012, vol. 115, issue 1, 67-69

Abstract: Estimation of the non-linear Constant Elasticity of Scale (CES) function is generally considered problematic due to convergence problems and unstable and/or meaningless results. These problems often arise from a non-smooth objective function with large flat areas, the discontinuity of the CES function where the elasticity of substitution is one, and possibly significant rounding errors where the elasticity of substitution is close to one. We suggest three (combinable) solutions that alleviate these problems and improve the reliability and stability of the results.

Keywords: Constant elasticity of substitution; CES function; Estimation; Non-linear least squares (search for similar items in EconPapers)
JEL-codes: C13 C51 D22 E23 (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1016/j.econlet.2011.12.007

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