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Empirical properties of duality theory

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  • Lusk, Jayson L.
  • Featherstone, Allen M.
  • Marsh, Thomas L.
  • Abdulkadri, Abdullahi O.

Abstract

This research examines selected empirical properties of duality relationships. Monte Carlo experiments indicate that Hessian matrices estimated from the normalised unrestricted profit, restricted profit and production functions yield conflicting results in the presence of measurement error and low relative price variability. In particular, small amounts of measurement error in quantity variables can translate into large errors in uncompensated estimates calculated via restricted and unrestricted profit and production functions. These results emphasise the need for high quality data when estimating empirical models in order to accurately determine dual relationships implied by economic theory.

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Bibliographic Info

Article provided by Australian Agricultural and Resource Economics Society in its journal Australian Journal of Agricultural and Resource Economics.

Volume (Year): 46 (2002)
Issue (Month): 1 (March)
Pages:

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Handle: RePEc:ags:aareaj:118069

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Keywords: Research Methods/ Statistical Methods;

References

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  1. Rulon D. Pope & Richard E. Just, 1998. "Cost Function Estimation under Risk Aversion," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(2), pages 296-302.
  2. Barry T. Coyle, 1999. "Risk Aversion and Yield Uncertainty in Duality Models of Production: A Mean-Variance Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(3), pages 553-567.
  3. Quiggin, John C. & Bui-Lan, Anh, 1984. "The Use Of Cross-Sectional Estimates Of Profit Functions For Tests Of Relative Efficiency: A Critical Review," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 28(01), April.
  4. Burgess, David F., 1975. "Duality theory and pitfalls in the specification of technologies," Journal of Econometrics, Elsevier, vol. 3(2), pages 105-121, May.
  5. Appelbaum, Elie, 1978. "Testing neoclassical production theory," Journal of Econometrics, Elsevier, vol. 7(1), pages 87-102, February.
  6. Robert G. Chambers & John Quiggin, 1998. "Cost Functions and Duality for Stochastic Technologies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(2), pages 288-295.
  7. Varian, Hal R., 1985. "Non-parametric analysis of optimizing behavior with measurement error," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 445-458.
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Cited by:
  1. Gao, Zhifeng & Featherstone, Allen M., 2008. "Estimating economies of scope using the profit function: A dual approach for the normalized quadratic profit function," Economics Letters, Elsevier, vol. 100(3), pages 418-421, September.
  2. Vilaphonh Xayavong & Nazrul Islam & Ruhul Salim, 2011. "Estimating Production Response of Broadacre Farms in Western Australia: The Nexus of Empirics and Economics Revisited," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 41(3), pages 217-232, December.
  3. Gao, Zhifeng & Featherstone, Allen M., 2006. "Estimating Economies of Scope Using Profit Function: A Dual Approach of the Normalized Quadratic Profit Function," 2006 Annual meeting, July 23-26, Long Beach, CA 21103, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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