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Empirical properties of duality theory

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  • Lusk, Jayson L.
  • Featherstone, Allen M.
  • Marsh, Thomas L.
  • Abdulkadri, Abdullahi O.

Abstract

This research examines selected empirical properties of duality relationships. Monte Carlo experiments indicate that Hessian matrices estimated from the normalised unrestricted profit, restricted profit and production functions yield conflicting results in the presence of measurement error and low relative price variability. In particular, small amounts of measurement error in quantity variables can translate into large errors in uncompensated estimates calculated via restricted and unrestricted profit and production functions. These results emphasise the need for high quality data when estimating empirical models in order to accurately determine dual relationships implied by economic theory.

Suggested Citation

  • Lusk, Jayson L. & Featherstone, Allen M. & Marsh, Thomas L. & Abdulkadri, Abdullahi O., 2002. "Empirical properties of duality theory," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 46(1), March.
  • Handle: RePEc:ags:aareaj:118069
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    References listed on IDEAS

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    1. Rulon D. Pope & Richard E. Just, 1998. "Cost Function Estimation under Risk Aversion," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(2), pages 296-302.
    2. C. Robert Taylor, 1984. "Stochastic Dynamic Duality: Theory and Empirical Applicability," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 66(3), pages 351-357.
    3. Barry T. Coyle, 1999. "Risk Aversion and Yield Uncertainty in Duality Models of Production: A Mean-Variance Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(3), pages 553-567.
    4. Ramon E. Lopez, 1984. "Estimating Substitution and Expansion Effects Using a Profit Function Framework," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 66(3), pages 358-367.
    5. Appelbaum, Elie, 1978. "Testing neoclassical production theory," Journal of Econometrics, Elsevier, vol. 7(1), pages 87-102, February.
    6. Robert G. Chambers & John Quiggin, 1998. "Cost Functions and Duality for Stochastic Technologies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(2), pages 288-295.
    7. John C. Quiggin & Anh Bui‐Lan, 1984. "The Use Of Cross‐Sectional Estimates Of Profit Functions For Tests Of Relative Efficiency: A Critical Review," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 28(1), pages 44-55, April.
    8. Burgess, David F., 1975. "Duality theory and pitfalls in the specification of technologies," Journal of Econometrics, Elsevier, vol. 3(2), pages 105-121, May.
    9. Varian, Hal R., 1985. "Non-parametric analysis of optimizing behavior with measurement error," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 445-458.
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    Cited by:

    1. Gao, Zhifeng & Featherstone, Allen M., 2008. "Estimating economies of scope using the profit function: A dual approach for the normalized quadratic profit function," Economics Letters, Elsevier, vol. 100(3), pages 418-421, September.
    2. repec:sbe:breart:v:31:y:2011:i:2:a:4065 is not listed on IDEAS
    3. Parman, Bryon & Featherstone, Allen & Amanor-Boadu, Vincent, 2014. "A Nonparametric Approach to Multi-product and Product-specific Scale Economies, Economies of Scope, and Cost Efficiency for Kansas Farms," 2014 Annual Meeting, February 1-4, 2014, Dallas, Texas 161626, Southern Agricultural Economics Association.
    4. Gao, Zhifeng & Featherstone, Allen M., 2006. "Estimating Economies of Scope Using Profit Function: A Dual Approach of the Normalized Quadratic Profit Function," 2006 Annual meeting, July 23-26, Long Beach, CA 21103, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    5. Parman, Bryon & Featherstone, Allen & Coffey, Brian, 2015. "Is Efficiency Analysis All There Is With Data Envelopment Analysis," Working Papers 197532, Mississippi State University, Department of Agricultural Economics.
    6. Parman, Bryon & Featherstone, Allen & Amanor-Boadu, Vincent, 2014. "A Comparison of Parametric and Nonparametric Estimation Methods for Cost Frontiers and Economic Measures," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 169877, Agricultural and Applied Economics Association.

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