IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Imposing Curvature and Monotonicity on Flexible Functional Forms: An Efficient Regional Approach

  • Hendrik Wolff

    ()

  • Thomas Heckelei
  • Ron Mittelhammer

Abstract In many areas of economic analysis, economic theory restricts the shape as well as other characteristics of functions used to represent economic constructs. Obvious examples are the monotonicity and curvature conditions that apply to utility, profit, and cost functions. Commonly, these regularity conditions are imposed either locally or globally. Here we extend and improve upon currently available estimation methods for imposing regularity conditions by imposing regularity on a connected subset of the regressor space. This method offers important advantages over the local approach by imposing theoretical consistency not only locally, at a given evaluation point but also within the whole empirically relevant region of the domain associated with the function being estimated. The method also provides benefits relative to the global approach, through higher flexibility, which generally leads to a better model fit to the sample data compared to the global imposition of regularity. Specific contributions of this paper are (a) to increase the computational speed and tractability of imposing regularity conditions in estimation, (b) to provide regularity preserving point estimates, (c) to avoid biases existent in previous applications, and (d) to illustrate the benefits of the regional approach via numerical simulation results

(This abstract was borrowed from another version of this item.)

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://hdl.handle.net/10.1007/s10614-010-9215-1
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Society for Computational Economics in its journal Computational Economics.

Volume (Year): 36 (2010)
Issue (Month): 4 (December)
Pages: 309-339

as
in new window

Handle: RePEc:kap:compec:v:36:y:2010:i:4:p:309-339
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100248

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. repec:ubc:bricol:91-21 is not listed on IDEAS
  2. Yacine Ait-Sahalia & Jefferson Duarte, 2002. "Nonparametric Option Pricing under Shape Restrictions," NBER Working Papers 8944, National Bureau of Economic Research, Inc.
  3. Christopher J. O'Donnell & Alicia N. Rambaldi & Howard E. Doran, 2001. "Estimating economic relationships subject to firm- and time-varying equality and inequality constraints," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(6), pages 709-726.
  4. William Barnett & Meenakshi Pasupathy, 2012. "Regularity Of The Generalized Quadratic Production Model: A Counterexample," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201235, University of Kansas, Department of Economics, revised Sep 2012.
  5. Douglas Fisher & Adrian R. Fleissig & Apostolos Serletis, 2001. "An empirical comparison of flexible demand system functional forms," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(1), pages 59-80.
  6. Ivaldi, Marc, et al, 1996. "Comparing Fourier and Translog Specifications of Multiproduct Technology: Evidence from an Incomplete Panel of French Farmers," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 649-67, Nov.-Dec..
  7. O'Donnell, Christopher J. & Coelli, Timothy J., 2005. "A Bayesian approach to imposing curvature on distance functions," Journal of Econometrics, Elsevier, vol. 126(2), pages 493-523, June.
  8. KOOP , Gary & OSIEWALSKI , Jacek & STEEL , Mark, 1995. "Bayesian Efficiency Analysis through Individual Effects : Hospital Cost Frontiers," CORE Discussion Papers 1995036, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. Griffiths, William E. & O'Donnell, Christopher J. & Cruz, Agustina Tan, 1999. "Imposing Regularity Conditions On A System Of Cost And Factor Share Equations," Working Papers 12925, University of New England, School of Economics.
  10. Griffiths, W.E., 2001. "Bayesian Inference in the Seemingly Unrelated Regressions Models," Department of Economics - Working Papers Series 793, The University of Melbourne.
  11. Lau, Lawrence J., 1986. "Functional forms in econometric model building," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 3, chapter 26, pages 1515-1566 Elsevier.
  12. C. L Chua & W. E. Griffiths & C. J O'Donnell, 2001. "Bayesian Model Averaging in Consumer Demand Systems with Inequality Constraints," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 49(3), pages 269-291, November.
  13. Tripathi, Gautam, 2000. "Local Semiparametric Efficiency Bounds Under Shape Restrictions," Econometric Theory, Cambridge University Press, vol. 16(05), pages 729-739, October.
  14. Evans, David S & Heckman, James J, 1984. "A Test for Subadditivity of the Cost Function with an Application to the Bell System," American Economic Review, American Economic Association, vol. 74(4), pages 615-23, September.
  15. Chotikapanich, D. & Griffiths, W.E. & Skeels, C.L., 2001. "Sample Size Requirements for Estimation in SUR Models," Department of Economics - Working Papers Series 794, The University of Melbourne.
  16. Andrew N. Kleit & Dek Terrell, 2001. "Measuring Potential Efficiency Gains From Deregulation Of Electricity Generation: A Bayesian Approach," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 523-530, August.
  17. A. Ronald Gallant & Gene H. Golub, 1982. "Imposing Curvature Restrictions on Flexible Functional Forms," Discussion Papers 538, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  18. W. Erwin Diewert & T.J. Wales, 1989. "Flexible Functional Forms and Global Curvature Conditions," NBER Technical Working Papers 0040, National Bureau of Economic Research, Inc.
  19. Barnett, William A., 2002. "Tastes and technology: curvature is not sufficient for regularity," Journal of Econometrics, Elsevier, vol. 108(1), pages 199-202, May.
  20. Koop, Gary & Osiewalski, Jacek & Steel, Mark F J, 1994. "Bayesian Efficiency Analysis with a Flexible Form: The AIM Cost Function," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 339-46, July.
  21. Siddhartha Chib & Edward Greenberg, 1994. "Markov Chain Monte Carlo Simulation Methods in Econometrics," Econometrics 9408001, EconWPA, revised 24 Oct 1994.
  22. Salvanes, K.G. & Tjotta, S., 1998. "A NOte on the Importance of Testing for Regularities for Estimated Flexible Functional Forms," Norway; Department of Economics, University of Bergen 177, Department of Economics, University of Bergen.
  23. Matzkin, Rosa L., 1986. "Restrictions of economic theory in nonparametric methods," Handbook of Econometrics, in: R. F. Engle & D. McFadden (ed.), Handbook of Econometrics, edition 1, volume 4, chapter 42, pages 2523-2558 Elsevier.
  24. Fleissig, Adrian R. & Kastens, Terry & Terrell, Dek, 1997. "Semi-nonparametric estimates of substitution elasticities," Economics Letters, Elsevier, vol. 54(3), pages 209-215, July.
  25. Ivaldi & Ladoux & Ossard & Simioni, 1996. "Comparing Fourier and Translog specifications of multiproduct technology : evidence from an incomplete panel of French farmers," Working Papers 153156, Institut National de la Recherche Agronomique, France.
  26. Christopher J. O'Donnell & C. Richard Shumway & V. Eldon Ball, 1999. "Input Demands and Inefficiency in U.S. Agriculture," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(4), pages 865-880.
  27. Barnett, William A & Kirova, Milka & Pasupathy, Meenakshi, 1995. "Estimating Policy-Invariant Deep Parameters in the Financial Sector When Risk and Growth Matter," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1402-29, November.
  28. Ryan, David L & Wales, Terence J, 1998. "A Simple Method for Imposing Local Curvature in Some Flexible Consumer-Demand Systems," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(3), pages 331-38, July.
  29. Lee C. Adkins & Dan S. Rickman & Abid Hameed, 2003. "Bayesian Estimation of Regional Production for CGE Modeling," Journal of Regional Science, Wiley Blackwell, vol. 43(4), pages 641-661.
  30. repec:att:wimass:9720 is not listed on IDEAS
  31. Terrell, Dek, 1996. "Incorporating Monotonicity and Concavity Conditions in Flexible Functional Forms," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(2), pages 179-94, March-Apr.
  32. 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.
  33. Barnett, William A., 1985. "The minflex-laurent translog flexible functional form," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 33-44.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:kap:compec:v:36:y:2010:i:4:p:309-339. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn)

or (Christopher F. Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.