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A NOte on the Importance of Testing for Regularities for Estimated Flexible Functional Forms

Kjell G Salvanes () and Sigve Tjøtta ()

Norway; Department of Economics, University of Bergen from Department of Economics, University of Bergen

Abstract: In empirical productivity analysis it has become customary to use flexible functional forms to represent a firm's production technology by estimating cost functions. In this note we suggest a procedure to calculate the region where an estimated translog cost function meet the required regularities (positive cost, positive marginal cost, homogeneous, monotonicity and concavity in input prices). We calculate this region for the US Bell cost function as reported by Evans and Heckman (1984, 1986), and show that the estimated cost function had negative marginal cost in most of the test region.

Keywords: PRODUCTIVITY; COSTS; TESTING (search for similar items in EconPapers)
JEL-codes: D24 (search for similar items in EconPapers)
Pages: 10 pages
Date: 1998
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More papers in Norway; Department of Economics, University of Bergen from Department of Economics, University of Bergen Department of Economics, University of Bergen Fosswinckels Gate 6. N-5007 Bergen, Norway. Contact information at EDIRC.
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