The Opportunity Cost of Duality
A dual representation of a technology, e.g., a cost function, may not contain all of the technological information, but it will contain all of the information about input vectors that would be chosen by a cost-minimizing firm. At least this much is clear for deterministic technologies. The main question addressed in this paper is whether the same can be said about stochastic technologies and their dual representations. Despite some pessimism expressed in the stochastic frontier literature on this question, we argue that there is no extra cost imposed in the stochastic case. Thus, the conclusion of this paper is: JUST DUAL IT!
|Date of creation:||14 Jun 1995|
|Date of revision:|
|Note:||12 pages; written with Scientific Workplace (v. 2). Posted file is the binary dvi file (35,048 bytes). No figures.|
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