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Imposing Regularity Conditions On A System Of Cost And Factor Share Equations

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Author Info
Griffiths, William E.
O'Donnell, Christopher J.
Cruz, Augustina Tan

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Abstract

Systems of equations comprising cost functions and first-order derivative equations are often used to estimate characteristics of production technologies. Unfortunately, many estimated systems violate the regularity conditions implied by economic theory. Sampling theory methods can be used to impose these conditions globally, but these methods destroy the flexibility properties of most functional forms. We demonstrate how Bayesian methods can be used to maintain flexibility by imposing regularity conditions locally. The Bayesian approach is used to estimate a system of cost and share equations for the merino-woolgrowing sector. The effect of local imposition of monotonicity and concavity on the signs and magnitudes of elasticities is examined.

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Paper provided by University of New England, School of Economics in its series Working Papers with number 12925.

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Date of creation: 1999
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Handle: RePEc:ags:uneewp:12925

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Keywords: Cost functions; Markov Chain Monte Carlo; inequality constraints; Demand and Price Analysis;

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  1. Gallant, A. Ronald & Golub, Gene H., 1984. "Imposing curvature restrictions on flexible functional forms," Journal of Econometrics, Elsevier, vol. 26(3), pages 295-321, December. [Downloadable!] (restricted)
  2. Mullen, J.D. & Cox, T.L., 1996. "Measuring Productivity Growth In Australian Broadacre Agriculture," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 40(03), December. [Downloadable!]
  3. Terrell, Dek, 1996. "Incorporating Monotonicity and Concavity Conditions in Flexible Functional Forms," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(2), pages 179-94, March-Apr. [Downloadable!] (restricted)
  4. Barnett, William A, 1983. "New Indices of Money Supply and the Flexible Laurent Demand System," Journal of Business & Economic Statistics, American Statistical Association, vol. 1(1), pages 7-23, January.
  5. Bigsby, H.R., 1994. "Production Structure And The Australian Sawmilling Industry," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 38(03), December. [Downloadable!]
  6. Berndt, Ernst R & Wood, David O, 1975. "Technology, Prices, and the Derived Demand for Energy," The Review of Economics and Statistics, MIT Press, vol. 57(3), pages 259-68, August. [Downloadable!] (restricted)
  7. Diewert, Walter E & Wales, Terence J, 1987. "Flexible Functional Forms and Global Curvature Conditions," Econometrica, Econometric Society, vol. 55(1), pages 43-68, January. [Downloadable!] (restricted)
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  8. Fisher, Brian S. & Wall, Charles A., 1990. "Supply Response In The Australian Sheep Industry: A Profit Function Approach," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 34(02), August. [Downloadable!]
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  1. Alejandro Onofri & Lilyan Fulginiti, 2008. "Public inputs and dynamic producer behavior: endogenous growth in U.S. agriculture," Journal of Productivity Analysis, Springer, vol. 30(1), pages 13-28, August. [Downloadable!] (restricted)
  2. J. Hirschberg & J. Lye & D.J. Slottje, 2005. "Alernative Forms for Restricted Regressions," Department of Economics - Working Papers Series 954, The University of Melbourne. [Downloadable!]
  3. Alejandro Onofri & Lilyan E. Fulginiti, 2005. "Public Inputs and Productivty in the Agricultural Sector: A Dynamic Dual Approach," Others 0502011, EconWPA. [Downloadable!]
  4. Tim J. Coelli & Chris O’Donnell, 2003. "A Bayesian Approach To Imposing Curvature On Distance Functions," CEPA Working Papers Series WP032003, School of Economics, University of Queensland, Australia. [Downloadable!]
    Other versions:
  5. Christopher J. O'Donnell & Alicia N. Rambaldi & Howard E. Doran, 2001. "Estimating economic relationships subject to firm- and time-varying equality and inequality constraints," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(6), pages 709-726. [Downloadable!]
  6. A. Onofri & L. Fulginiti, 2008. "Rejoinder," Journal of Productivity Analysis, Springer, vol. 30(1), pages 81-85, August. [Downloadable!] (restricted)
  7. W.E. Griffiths & Ma. Rebecca Valenzuela, 2004. "Gibbs Samplers for a Set of Seemingly Unrelated Regressions," Department of Economics - Working Papers Series 912, The University of Melbourne. [Downloadable!]
  8. Marsh, Thomas L. & Featherstone, Allen M., 2003. "Inverse Demand Relationships For Wheat Food Use By Class," 2003 Annual meeting, July 27-30, Montreal, Canada 22001, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  9. Sauer, Johannes, 2006. "Monotonicity And Curvature - A Bootstrapping Approach," 46th Annual Conference, Giessen, Germany, October 4-6, 2006 14948, German Association of Agricultural Economists (GEWISOLA). [Downloadable!]
  10. Griffiths, W.E., 2001. "Bayesian Inference in the Seemingly Unrelated Regressions Models," Department of Economics - Working Papers Series 793, The University of Melbourne. [Downloadable!]
  11. N'Guessan, Yapo G. & Featherstone, Allen & Cader, Hanas A., 2005. "Choice of the Empirical Definition of Zero in the Translog Multiproduct Cost Functional Form," 2006 Annual Meeting, February 5-8, 2006, Orlando, Florida 35369, Southern Agricultural Economics Association. [Downloadable!]
  12. Dong, Fengxia & Marsh, Thomas L. & Stiegert, Kyle W., 2003. "State Trading Enterprises in a Differentiated Environment: The Case of Global Malting Barley Markets," Staff General Research Papers 11163, Iowa State University, Department of Economics. [Downloadable!]
    Other versions:
  13. Wolff, Hendrik & Heckelei, Thomas & Mittelhammer, Ron C., 2004. "Imposing Monotonicity And Curvature On Flexible Functional Forms," 2004 Annual meeting, August 1-4, Denver, CO 20256, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
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