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A Homothetic and Additively Separable Production Frontier

Author

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  • Antonio Peyrache

    (School of Economics and Centre for Efficiency and Productivity Analysis (CEPA) at The University of Queensland, Australia)

Abstract

I propose a computationally tractable and simple way of building a technology set that is homothetic and complete additevely separable. This results in a technology which is nonparametric in the graph and has an input isoquant of a constant elasticity of substitution (CES) functional form (not necessarily convex). The method introduced in this paper preserves good discrimination power when the number of inputs is large (thus addressing the curse of dimensionality), while preserving full flexibility in the graph of the technology and the form of scale economies. A numerical simulation is presented to show the drastic improvement in discrimination power compared to other methods. Two empirical illustrations are provided to show the usefulness of the approach.

Suggested Citation

  • Antonio Peyrache, 2024. "A Homothetic and Additively Separable Production Frontier," CEPA Working Papers Series WP012024, School of Economics, University of Queensland, Australia.
    • Handle: RePEc:qld:uqcepa:193
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    File URL: https://economics.uq.edu.au/files/50232/WP012024.pdf
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