Testing the convexity hypothesis in nonparametric cost functions

Kristiaan Kerstens () and Shirong Zhao
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Kristiaan Kerstens: LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique
Shirong Zhao: DUFES - Dongbei University of Finance and Economics, Dalian

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Abstract: We developed statistical tests in nonparametric models of production. The tests are applied to a panel of US electric power generation plants and strong evidence against convexity is found for most years in the resulting cost functions. Our results suggest that empirical researchers need to be more cautious about the often implicit embedding of the convexity assumption for the cost functions.

Keywords: Convexity; Cost function; Convex technology; Nonconvex technology (search for similar items in EconPapers)
Date: 2025-02
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Published in Economics Letters, 2025, 247, pp.112196. ⟨10.1016/j.econlet.2025.112196⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05109507

DOI: 10.1016/j.econlet.2025.112196

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