The Econometric Specification of Input Demand Systems Implied by Cost Function Representations
AbstractIn the case of input demand systems based on specification of technology by a Translog cost function, it is common to estimate either a system of share equations alone, or to supplement them by the cost function. By adding up, one of the share equations is excluded. In this paper it is argued that a system of n-1 share equations is essentially incomplete, whereas if the n-1 share equations are supplemented by the cost function the implied error structure is inadmissible. Similarly, if the technology is specified by a normalized quadratic cost function, it is common to estimate either a system of n-1 demand equations alone, or to supplement them by the cost function. In both cases, the implied error structure is again inadmissible.
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Bibliographic InfoPaper provided by Monash University, Department of Econometrics and Business Statistics in its series Monash Econometrics and Business Statistics Working Papers with number 3/09.
Length: 14 pages
Date of creation: Apr 2009
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Find related papers by JEL classification:
- C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
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NBER Technical Working Papers
0040, National Bureau of Economic Research, Inc.
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