Estimating complex production functions: the importance of starting values

Mark Neal ()

No 10435, 2007 Conference (51st), February 13-16, 2007, Queenstown, New Zealand from Australian Agricultural and Resource Economics Society

Abstract: Production functions that take into account uncertainty can be empirically estimated by taking a state contingent view of the world. Where there is no a priori information to allocate data amongst a small number of states, the estimation may be carried out with finite mixtures model. The complexity of the estimation almost guarantees a large number of local maxima for the likelihood function. However, it is shown, with examples, that a variation on the traditional method of finding starting values substantially improves the estimation results. One of the major benefits of the proposed method is the reliable estimation of a decision maker's ability to substitute output between states, justifying a preference for the state contingent approach over the use of a stochastic production function.

Keywords: Production; Economics (search for similar items in EconPapers)
Pages: 30
Date: 2007
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Working Paper: Estimating complex production functions: The importance of starting values (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aare07:10435

DOI: 10.22004/ag.econ.10435

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