Reliability of the Translog Cost Function: Some Theory & an Application to the Demand of Energy in French Manufacturing

Sourour Baccar

MPRA Paper from University Library of Munich, Germany

Abstract: We investigate the behavior of three versions of the translog cost function : the standard Log-quadratic version and two nonlinear versions with exponential and linear technical progress biases, respectively. Their performances are assessed according to three criteria: (i)on theoretical ground,(ii) on their ability to provide plausible estimates of economic and technological characteristics, and finally, (iii) on their reliability of fit for input shares, input-output ratios and unit cost. The most important result is that the standard form exhibits some weakness in fitting. We show via a series of experiments that those imprecisions are due to a lack of flexibility of the Log-quadratic form. Therefore, our results suggest that caveats should be attached to several previous studies, and care must be taken by future researchers who use such models.

Keywords: translog cost function; reliability of fit; flexibility; energy demand; technical change modelling. (search for similar items in EconPapers)
JEL-codes: C51 C52 C54 L2 O3 (search for similar items in EconPapers)
Date: 1995-12
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