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 makerÃ¢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 Risk and Sustainable Management Group, University of Queensland in its series Risk & Uncertainty Working Papers with number WP1R07.
Date of creation: Feb 2007
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Production function; econometrics; starting values; state contingent production;
Other versions of this item:
- Neal, Mark, 2007. "Estimating complex production functions: the importance of starting values," 2007 Conference (51st), February 13-16, 2007, Queenstown, New Zealand 10435, Australian Agricultural and Resource Economics Society.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-11-17 (All new papers)
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