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Flexible Functional Forms and Global Curvature Conditions

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  • Diewert, Walter E
  • Wales, Terence J

Abstract

Two methods are developed for imposing curvature conditions globally in the estimation of cost functions. The first adopts a procedure due to Lau, for imposing the conditions locally, to a generalization of a functional form proposed by McFadden. With this functional form, imposing the appropriate conditions at one data point imposes the conditions globally. The second method adopts a technique used by Diewert, McFadden, and Barnett, which is based on the fact that a nonnegative sum of concave functions is concave. The suggested techniques are illustrated using the U.S. Manufacturing data utilized by E. R. Berndt and M. S. Khaled_(1979). Copyright 1987 by The Econometric Society.

Suggested Citation

  • Diewert, Walter E & Wales, Terence J, 1987. "Flexible Functional Forms and Global Curvature Conditions," Econometrica, Econometric Society, vol. 55(1), pages 43-68, January.
    • Handle: RePEc:ecm:emetrp:v:55:y:1987:i:1:p:43-68
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