Estimating complex production functions: The importance of starting values
AbstractProduction functions that take into account uncertainty can be empirically estimated by taking a state contingent view of the world. Where there is no a priori information to allocate data amongst a small number of states, the estimation may be carried out with finite mixtures model. The complexity of the estimation almost guarantees a large number of local maxima for the likelihood function. However, it is shown, with examples, that a variation on the traditional method of finding starting values substantially improves the estimation results. One of the major benefits of the proposed method is the reliable estimation of a decision maker's ability to substitute output between states, justifying a preference for the state contingent approach over the use of a stochastic production function.
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Bibliographic InfoPaper provided by University of Queensland, School of Economics in its series Risk and Sustainable Management Group Working Papers with number 151178.
Date of creation: 26 Jan 2007
Date of revision:
Production function; econometrics; starting values; state contingent production; Production Economics; Production Economics; Risk and Uncertainty; C51; D24;
Find related papers by JEL classification:
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
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CEPA Working Papers Series
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- repec:tcd:wpaper:tep4 is not listed on IDEAS
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