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Fellow’s Opinion Article: Tastes and Technology: Curvature is not Sufficient for Regularity

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  • William Barnett

    (Department of Economics, The University of Kansas)

Abstract

In specifications of tastes and technology, econometricians often impose curvature globally, but monotonicity only locally or not at all. In fact monotonicity rarely is even mentioned in that literature. But without satisfaction of both curvature and monotonicity, the second order conditions for optimizing behavior fail, and duality theory fails. The resulting first order conditions, demand functions, and supply functions become invalid. Although unconstrained specifications of technology are more likely to produce violations of curvature than monotonicity, I believe that induced violations of monotonicity become common, when curvature alone is imposed. Hence the now common practice of equating regularity with curvature is not justified.

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File URL: http://www2.ku.edu/~kuwpaper/2009Papers/201232.pdf
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Paper provided by University of Kansas, Department of Economics in its series WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS with number 201232.

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Length: 6 pages
Date of creation: Sep 2012
Date of revision: Sep 2012
Handle: RePEc:kan:wpaper:201232

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Keywords: technology; regularity; curvature; production; flexible;

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  1. William A. Barnett & Milka Kirova & Meenakshi Pasupathy, 1994. "Estimating policy-invariant deep parameters in the financial sector when risk and growth matter," Proceedings, Federal Reserve Bank of Cleveland, pages 1402-1440.
  2. Barnett, William A. & Geweke, John & Wolfe, Michael, 1991. "Seminonparametric Bayesian estimation of the asymptotically ideal production model," Journal of Econometrics, Elsevier, vol. 49(1-2), pages 5-50.
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