Quadratic Spline Models for Producer's Supply and Demand Functions

Walter Diewert and T J Wales

International Economic Review, 1992, vol. 33, issue 3, 705-22

Abstract: In this paper, the authors propose and estimate a system of producer output supply and input demand functions that generalizes the standard normalized quadratic form. The generalization adds either linear or quadratic splines in a time (or technical change) variable, yet retains the main attractive property of the normalized quadratic, which is that it can provide a local second order approximation while maintaining the correct curvature globally. However, the generalization has additional desirable approximation properties with respect to the splined variable and, thus, permits a more flexible treatment of technical change than is provided by standard flexible functional forms. Copyright 1992 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Date: 1992
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